U.S. – China Student Space Law Symposium: An Insurer’s Dilemna for Insuring Commercial Human Space Flight

March 3, 2010 at 10:02 am | Posted in Blogcast, Space Law | Leave a comment

by P.J. Blount with the blog faculty

University of Mississippi School of Law Student, Paul Ordyna, gave the second presentation, An Insurer’s Dilemma for Insuring Commercial Human Space Flight.

Mr. Ordyna started by stating that risks permeate human activity, and that commercial human spaceflight was no exception. He stated that insurance companies shift risk to lower the cost. He stated that it was currently an unknown as to what it is going to cost to insure human spaceflight. He said that there were three challenges that insurers will take into account when setting their pricies in this area: moral hazard, adverse selection, catastrophic loss. Moral Hazard refers to an insured party’s propensity to act with less care to avoid an insured loss than would be exercised if the loss were not insured. Adverse selection refers to when a party having a higher risk of loss is more likely to obtain insurance coverage than a party with a lower risk of loss; Ordyna stated that this often lead to a greater liklihood to misinform insurers in order to acquire insurance. The third factor, catastrophic loss. This refers to a situation that has a potential of forcing the insurer into a situation where the insurer is unable to pay all claims levied against it, thus forcing the insurer out of business.

Ordyna said that these challenges were combated by insurers using strategies such as risk pooling and via research and analysis of trends and data. He said that these strategies may not be appropriate to the human spaceflight field. He said that other strategies may be necessary such as governmental efforts; Operator Cooperation and Communication; and convincing underwriters. He noted that there have been numerous governmental efforts in this area. He noted that the Outer Space Treaty sets the foundation of how liability will be distributed around the world. He then said that the United States Commercial Space Launch Amendments Act sets up the regime that will govern insurance in the United States, which limits a private entity’s loss in order to encourage commercial spaceflight.

He stated that Operator Cooperation and Communications will involve continual test flights to develop the data on these types of flights. He said that this will take cooperation between the government, insurers, and industry peers. This will develop standards that can help reduce the risk across the industry.

Finally, he said that convincing the underwriter is vitally important. He stated that business risks and economic concerns will be a primary in an underwriter’s decision to insure. He said that underwriters will need a great deal of technical information in order to make decision on insurance. Specifically, he said that insurers will need information about safety. He stated that insurers will need to focus on areas of greatest risk in order to make insurance determinations. He concluded by stating that insurers and operators can lower that cost of insurance by actively communicating with each other.