Space is a critical industry in the geopolitical contest and the United States needs to remain on the forefront, considering that other world powers are proceeding rapidly in the use of space. While the space industry already receives significant support by the Government;[1] the Government could support the space industry in more ways. For example the Government could offer re-insurance programs dedicated to Space Companies, considering the difficulties in finding insurance for space ventures: insurance is becoming difficult to obtain because, among other reasons, data with regard to space risks is spotty so insurers have a difficult time setting premiums and avoiding excessive risk. It is in fact understandable that insurance companies are reluctant to enter into this field because of the absence of data to determine the risks and costs involved.
Reinsurance is insurance for insurers that enables them to transfer a portion of the risk to the reinsurer. Private reinsurance is, of course, available for ordinary risks but for space reinsurance, we have the same problems seen for space insurance or even more (especially considering that reinsurance typically deals with the larger part of a potential loss).
There are several examples of government reinsurance. For example, one model is government reinsurance for healthcare. In order to reduce premium cost to enrollees in health plans, some states have adopted state reinsurance programs. Another is the National Flood Insurance Program (NFIP) managed by the federal government through FEMA. [2] The program offers insurance to property owners in more than 23,000 participating communities.
The method of reinsurance can be complex and can vary depending on the type of insurance, but it should not be difficult in principle to construct. Three significant factors in the construction of the reinsurance program would be i) the “attachment point,” which is the level at which the reinsurance would set in; ii) the “reinsurance cap,” which is the maximum amount the insurer would pay; and iii) and the “coinsurance rate,” which is the proportion of the loss that the reinsure would pay in excess of the attachment point.[3]
Reinsurance programs could cover individual large projects, such as a space station, lunar or asteroid mining, a Mars project, or it could cover a large number of relatively small projects, such as small satellite launches. The reinsurance program could involve a relatively small number of reinsurers or the number could be quite large as is the case with the federal flood insurance program which has over 50 participating insurers.
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[1] Loren Grush, Commercial space companies have received $7.2 billion in government investment since 2000, available at https://www.theverge.com/2019/6/18/18683455/nasa-space-angels-contracts-government-investment-spacex-air-force. Last visited on Oct 19, 2022 (explaining that this $ 7.2 billion in government investment was received by 67 space companies in a period of 18 years but that about 93% of that investment went to launching companies).
[2] National Flood Insurance Program’s Reinsurance Program, available at https://www.fema.gov/flood-insurance/work-with-nfip/reinsurance. Last visited on Nov. 13, 2022
[3] Center on Budget and Policy Priorities, Reinsurance Basics: Considerations as States Look to Reduce Private Market Premiums, available at https://www.cbpp.org/research/health/reinsurance-basics-considerations-as-states-look-to-reduce-private-market-premiums. Last visited on Dec. 18, 2022.
