Higher insurance rates for Proton threaten its market viability


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Capitalism in space: Because the insurance industry is presently charging significantly more to insure a Proton launch than it charges for Falcon 9 or Ariane 5, the Russian share of the launch market is threatened.

Insurance premiums for launches of International Launch Services’ Russian Proton rocket, which satellite operators and insurers say is a necessary third leg for the commercial market — the SpaceX Falcon 9 and the ArianeGroup Ariane 5 being the other two — total about 12% of the insured value. That compares with 3-4% for Ariane 5 and 4-5% for the Falcon 9.

In dollar terms, that means that ILS customers seeking a $200 million policy covering the the value of the satellite, the launch and the satellite’s first year in orbit, would pay a $24 million premium. The same customer launching the same satellite on Falcon 9 or the Ariane 5 would pay no more than $10 million, and possibly less.

The industry cites the quality control problems experienced by the entire Russian space industry, and Proton in particular, in the past decade for this differential. They say they expect these rates to fall if Proton continues its string of successful launches, now totaling 12 in a row.

The article also includes an interesting interview with Kirk Pysher, the head of International Launch Services (ILS), which handles the commercial launches of Proton for Russia. He mentions the possibility that Russia will self-insure so private customers will no longer have bear the cost of these higher rates, thus making ILS more competitive with SpaceX and ArianeGroup.

I think there is another unstated reason why the insurance company is charging more. In the past five years Russia consolidated its entire aerospace industry into a single corporation, Roscosmos, run by the government. I suspect that insurers do not trust this set-up for being the best vehicle for achieving efficiency and good quality control, and that is why they are still taking a wait-and-see attitude on whether Russia has gotten a handle on the quality control issues that caused so many failures in recent years.

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8 comments

  • LocalFluff

    If there were demand for spacecrafts to beyond Earth orbit, such as to Mars, then old Proton could launch fuel to LEO uninsured. Maybe it could compete with Falcon 9, with a slightly higher capability, for a while of the demand is high enough to saturate F9 availability.

    With $8 billion class payloads like the JWST, and human space flight, there is a market for the safest launcher, regardless everything else. And the safest is the one most proven. Which is the reusable one. Thus the most valuable payloads will, in a few years, be launched on Falcon 9.

  • Garry

    Your title puzzled me, until I realized that “is” should read “its.”

  • Garry: Oy. I am typing too fast these days. Title fixed.

  • wayne

    Going tangential….

    Walter B. Gibson, American Writer 1897-1985 (AKA Maxwell Grant)
    http://www.mysticlightpress.com/index.php?page_id=131

    Estimated he wrote in excess of 29 million words in his career.

  • Edward

    I had not realized that the insurance rates had dropped so dramatically. All this time, when talking about the cost to put a satellite into orbit, I have continued to use the 20% rate from the mid 1990s. This recent reduction in rates indicates to me that not only have the rockets become more reliable, but the satellites themselves have also become more reliable.

    From the article: “… Russian Proton rocket, which satellite operators and insurers say is a necessary third leg for the commercial market — the SpaceX Falcon 9 and the ArianeGroup Ariane 5 being the other two …

    Satellite operators consider Proton, not ULA, as one of their three top choices for launch. Despite the insurance cost and the recent problems with Russian rockets, the satellite operators like the $65-ish million price tag plus the higher insurance premium over ULA’s price tag.

    From the article: As soon as satellite operators make the choice of Proton again, we [insurance companies] will support the operators — as we always have done. At the moment there have not been many recent [commercial] launches with Proton.

    The insurers are also using the satellite operators as a bellwether for faith in the various rockets. The operators tend to be picky about the rockets they choose, despite the insurance. The operators only are reimbursed for the direct costs of buying the satellite and the launch, not the lost business, interest on loans to buy the satellite, or any other lost opportunity costs.

    Robert wrote: “I suspect that insurers do not trust this set-up for being the best vehicle for achieving efficiency and good quality control

    It is unclear to me what the reason is, but it is clear that the insurance companies do not yet have faith that the recent stand down of Russian rocket launches has resulted in the reliability that these companies look for in a launch rocket.

    The article and the interview portion are full of interesting tidbits.

  • wodun

    After all the discussion from space cadets I’ve read about insurance rates, I hadn’t seen any actual numbers. Probably just because I don’t read enough.

    Under the old launch system, they appear almost inconsequential. When you spend a couple hundred million whats another ten million? However, under the system SpaceX brings us, ten million dollars is a significant part of the total cost to the customer, even at their current prices. This is really a reflection of the value of the payload but still emphasizes how big an impact SpaceX has been.

    Launching used to be one of the biggest costs of putting something in space but soon, insurance could be one of the largest costs after payload construction.

  • Edward

    wodun,
    Here are the numbers that I have been using for the 1990s (they are, of course, generic and do not apply to any one satellite):
    $100 million to build a communications satellite, $100 million to launch the satellite, and $50 million to insure the satellite.

    Updated numbers after reading the article:
    $150 million to build the satellite, %65 million to launch the satellite, and $10 million to insure the satellite (add $15 million more insurance costs to insure a Russian launch).

    To be fair, the 1990s insurance costs included all 15 years of satellite operation, but the riskiest time for a satellite is launch, release, and deployment.

    When you spend a couple hundred million whats another ten million?

    Could an additional $15 million in insurance costs mean the end of the Proton’s commercial viability? The Russians seem to think so, because they are considering insuring their own launches until the underwriters bring down their prices, since the additional cost (7%) seems to be keeping customers away. It seems that a mere ten million is enough to be an important consideration in the satellite industry.

  • wodun

    Edward
    October 18, 2017 at 6:21 pm

    Could an additional $15 million in insurance costs mean the end of the Proton’s commercial viability? The Russians seem to think so…

    As launch prices drop, the extra $15 million will be a huge deal. A lot depends on what price SpaceX chooses. They can drop prices quite a bit and still turn a profit but they need a significant cushion to pay back investors and invest in development.

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