Introduction
According to an Insight Report by the World Economic Forum, the world space economy is expected to be worth $1.8 trillion by 2035. The current valuation of the Indian space economy stands at $8.4 Billion with a 2% share in the world economy. India hopes to achieve its target of a 10% share in the world space economy by 2030.
It is pertinent to note that the global space sector is transitioning from Space 3.0 era to Space 4.0 era. This transition stresses upon partnerships between public and private sector entities with an increased involvement of the private sector in space activities. With the release of the much-anticipated InSpace Policy 2023, India has become a part of this transition. The policy encourages the involvement of the private sector in shaping of India’s space economy.
It cannot be disputed that space is a high-stake environment which requires proper risk management as even minor lapses can lead to significant losses. It can also have potential environmental ramifications as objects launched in space tend to return as debris and can impact the earth’s surface.
Due to the high risks associated with space activities, specialized insurance policies are often required to cover potential liabilities. The unpredictability of space missions is one of the several challenges faced by the space insurance industry. As the space industry continues to grow and spread its wings, the need to safeguard and provide support to these ventures increases thus bringing specialised insurance services into picture.
India lacks a ‘comprehensive domestic legislation’ which addresses concerns of insurance and liability in the space sector. In a report published by the only space think tank of India, Spaceport SARABHAI, it has been highlighted that India is in need of a comprehensive insurance regulatory approach considering increasing role of private players. The insurance requirements need to be clearly defined in the legislation not leaving the specifics to be determined by the private players.
In emerging economies, it is imperative to establish robust financial risk coverage for high-risk sectors such as space. Insufficient risk coverage can lead to detrimental consequences within the sector leading to a ripple effect that undermines overall economic growth and stability.
In another report published, one of the reasons behind Indian founders starting their startups abroad was identified to be a lack of clear policy framework. Indian startups face various challenges due to absence of a comprehensive insurance policy. These challenges include financial risk exposure, difficulty in securing funding, increased liability etc. The involvement of private entities in India’s space sector has been impeded by several factors, including inadequate access to finance, the absence of a stable and predictable regulatory framework, and persistent uncertainty regarding liability in the event of untoward incidents.
There are around 189 startups in India developing space-related businesses. These new entrants in space economy are seeking financial risk mitigation tools to ensure sustainability of their operations. Moreover, with growing interest in activities like space tourism which will see greater participation of the private sector, an assurance based-regulatory framework must be developed at the domestic level.
Current Legal Framework
The international framework which governs liability with respect to space exploration to which India is also part of is Convention on International Liability for Damage Caused by Space Objects, 1972 (“Liability convention”). The liability convention makes the launching state absolutely liable for any damages caused by space operation irrespective on earth or in air and fault-based liability in case the damage that occurs is in outer space. Therefore, it might result into an unlimited liability for the launching state in case of damage by the third party, irrespective of whether that third party is a governmental or non-governmental entity.
The legal framework regarding liability with respect to damages caused in due course of space operation came to fruition when Norms, Guidelines and Procedures (“NGP”) released by the Indian National Space Promotion and Authorization Centre (“IN-SPACe”) on May 3, 2024 in furtherance for the implementation of Indian Space Policy-2023. Though earlier attempts were made to regulate space activities through Space-Based Communications Policy, 2020 and Space Activities Bill, 2017 but they didn’t generate much support from the space industry because they squarely put the complete liability on the private entities that might act as a deterrent for them to carry out space exploration.
Guidelines under NGP
NGP provides these set of guidelines to followed:-
1. Sub-orbital and orbital launches from Indian Territory:
The state’s liability for space launches is managed through mandatory third-party liability insurance maintained by the Launch Operator, as deemed necessary by IN-SPACe. Key guidelines include setting the minimum insurance amount, period, and terms by IN-SPACe; ensuring coverage during the re-entry phase of rocket components; and including damages caused by the launch vehicle and its payloads. The insurance must also cover government properties and employees, with the Government of India included as an insured entity. Standard global exclusions may be permitted, and applicants must have their draft insurance policy approved by IN-SPACe to prevent later modifications. For launches involving non-Indian entities, the launch contract must include clauses transferring third-party liability.
2. Sub-orbital and orbital launches from outside Indian Territory:
Indian Launch Operators can conduct sub-orbital and orbital launches from outside India with IN-SPACe authorization. Third-party liability, as per the Outer Space Treaty (1967) and Liability Convention (1972), must be addressed with the nation from where the launch occurs through agreements or contracts. For launches involving non-Indian entities, the contract must require the non-Indian entity to fully assume all risks.
3. Space Objects owned and controlled by Indian Entity being launched from Indian Launch Vehicle:
The Launch Operator must secure IN-SPACe Authorization from the Space Object’s owner before launch. Additionally, the Space Object must comply with the Norms, Guidelines, and Procedures for registration outlined in Chapter XI of NGP.
4. Space Objects owned and controlled by Indian Entity being launched from non-Indian Launch Vehicle:
The Indian Entity owning the Space Object must ensure that the launch contract holds the Launch Operator liable for third-party liability arising from the launch vehicle and activities until the Space Object separates, in line with the Outer Space Treaty (1967) and Liability Convention (1972). If the Launch Operator maintains third-party insurance, the Government of India must be included as an insured entity, along with the Indian Entity.
5. IN-SPACe may also emphasise on maintaining third-party insurance in case of re-entry on case to case basis.
6. There are also certain further guidelines like adherence to rules regarding space debris.
Insurance Landscape and Challenges
In 2018, the International Union of Aerospace Insurers reported that more than 60% of commercial launches to orbit were insured. This was a significant increase from 2010, when only about 36% of commercial launches were insured. As of January 2019, 212 of the 492 active satellites in geostationary orbit (“GEO”) were insured, which is about 43% of all active GEO satellites at that time. However, only 23% of GEO operators bought little to no insurance beyond launch plus one. In low Earth orbit (“LEO”), only 95 satellites of 1,715 total active satellites were insured, which is a much lower percentage of about 5.5%.
Space insurance is syndicated, means that risk is distributed among different companies. For example, if a satellite launch is insured to tune of USD 100 million, company A will bear risk amounting to USD 20 million, Company B will bear risk amounting to USD 30 million and similarly hence and so forth.
An insurance package generally covers risk to the rocket, the satellite and other related equipment. Insurance premium is influenced by factors like market condition, type of rocket, and satellite condition. While all company in an insurance package has similar terms and condition for the contract, each commercial space insurance contract are individually crafted.
Some of the noted types of space insurance are :-
1) Pre Launch insurance – This covers damage to the satellite or launch vehicle before actual launch
2) Launch insurance – This starts from the time when engine of launch vehicle are switched on till the satellite gets separated. It insures satellites from complete failure of the mission or failure of inserting satellite into a particular orbit.
3) In orbit insurance – This is the time when satellite is separated from the launch vehicle and is put up in orbit. The insurance gets renewed each year till the time when the satellite completes its life.
4) Third-party liability and government property insurance – It covers those scenarios where any damage is to caused to public or private property because of the space operation.
Generally, insurance premiums are eight to fifteen percent of the total cost associated with the launch. In space insurance, 10-20 percent of the premium is required when policy commences and rest is paid to underwriters no later than 30 days before the launch. In addition, in orbit policies are generally negotiated separately from launch plus 3 or 5 years policy.
Despite significant improvements in launch success rates, the insurance industry has faced challenges in recent years, with payouts exceeding annual premiums. In 2018 alone, insurance claims for failed launches and on-orbit failures totalled approximately $600 million. However, premiums for that year only amounted to about $460 million, resulting in a loss of nearly $140 million for the international space insurance market. A launch failure in July 2019 resulted in the largest single insurance claim to date, amounting to nearly $415 million for the United Arab Emirates’ Falcon Eye 1 imaging satellite. The International Union of Aerospace Insurers anticipates that this trend will persist.
Recently, Swiss Re, one of the leading providers of reinsurance and insurance, announced in 2019 that it is exiting the space insurance market. This was due to the “bad results of recent years and unsustainable premium rates.
In today’s world, a country’s development is the aggregate of the sustainable development of all its industries. Collaboration between private players and government regulatory industries leads to the development of a strong economic ecosystem. Private players bring in the necessary capital, technical know-how and business acumen and help in democratising technology knowledge.
Most spacefaring nations self-insure national space missions. This means that the government assumes all financial liability and risk if a space mission should fail. In countries like the USA and Australia, the liability of private entities is limited. In the United States private entities are not required to pay more than $500 million. In addition to this, states in the United States provide guarantees that in case the damages exceed the ceiling amount they would cover it. This helps in reduction of overall burden on private entities especially start-ups which are more vulnerable. In France the limit of EUR 60 million is required by regulation and any further damages are met by the sovereign. There is a direct link between the presence of a properly laid out insurance policy and performance of the private sector. In contrast to this, “the 2017 Space Bill had allowed all liability to pass to the private entity with vesting the Central Government with the discretion to determine the quantum of liability to be imposed upon a licensee.”
“In recent times, India’s space endeavors have captured worldwide interest, notably through the successful soft-landing of Chandrayaan-3 near the lunar south pole, followed by the launch of Aditya-L1 to investigate the solar atmosphere.” With the world attention finally now on India, the time has come to increase our reach by properly integrating the private sector into our space ambitions.
Conclusion
The government’s action in bringing NGP is commendable but it is to be taken with a pinch of salt. It lacks in providing proper guidelines regarding first-party insurance or other forms of financial protection which are required. The guidelines mention that IN-SPACe will set “minimum insurance amount, period, and terms”, but do not provide detailed criteria which would be involved in determining these parameters. The policy also fails to outline scenarios where third-party damages exceed the insurance coverage. In such cases, it is unclear whether the state would seek to recover the balance amount from the domestic private entity if the space exploration mission is conducted by them. Since space is a high risk sector, insurance and liability related aspects need to be spelt out properly without leaving any room for ambiguity.
Therefore, there is a need for comprehensive and robust mechanisms for enforcement as Space is a high-risk sector.
This article is a part of the Showcase Pieces Series.
Students, National Law University, Jodhpur
