For tourists, space travel represents an exciting and unexplored frontier. For insurers, the prospect of insuring commercial space travel offers great opportunity, but it is also riddled with uncertainty.

Companies such as Space X and Virgin Galactic are taking steps to offer space tourism to the mainstream public. If Space X and Virgin Galactic succeed in providing mainstream commercial space flight, they will need to offer insurance. Insurance helps commercial space flight operators to better manage and assess risk and therefore allow them to grow. However, since commercial space flight is a fledgling industry, insurers will have trouble calculating insurance risks and premiums.

“In my opinion, two of the most pressing issues faced by insurance companies hoping to cover space tourism is first, lack of a track record upon which a statistical analysis can be made,” University of Mississippi Professor Joanne Gabrynowicz said. “The second is a large enough pool of funds that needs to be available in the event a claim is made for which a payment has to be made.”

Besides actuarial issues, insurers also face a hornet’s nest of legal and regulatory issues. According to University of Nebraska-Lincoln Law Professor Frans von der Dunk, commercial space flight’s uncertain regulatory environment will also affect premium calculations.

“Third party liability might perhaps have been arranged suitably, with a limit imposed on the requirement to insure against such liability – at least as far as US national law is concerned,” he said. “Once Virgin Galactic or XCOR/SXC start flying outside of the US the situation is not yet clear-cut. As to passenger liability, however, even in the US a lot of uncertainties arise.

Even within the United States, federal and local regulation is conflicted. As the commercial space flight industry matures, he believes they must address a host of unanswered questions.

“At the federal level, operators are allowed to fly on the condition of ‘informed consent’ by the passengers, but this does not automatically translate into immunity of liability – that is why so far six states have specifically linked statutory immunity to informed consent in order to attract operators,” von der Dunk continued. “Even that does not solve the issue, however. Exceptions to the immunity are offered which at least in four of the six cases raise serious questions as to the real value of the immunity. Claimants are likely to try and circumvent the immunity by claiming gross negligence or willful misconduct (as comparisons with other high-adventure tourism activities and informed consent in those contexts would show). There is the issue of federal preemption (are individual US states allowed to regulate where the FAA has already a regulatory regime, even if very ‘light’ in nature, in place?). And what happens if claimants start suing outside the six states or even outside the US altogether, trying to circumvent these statutory immunities?”

The commercial space flight industry, like other fledgling industries, faces a complicated legal landscape. Laws vary from state to state and country to country. In order to determine best practices and shift some aspects of space law from theory to reality, commercial space flight itself must mature. This will only happen when commercial space flight companies are battling regulators over issues such as liability and insurance. If passengers start suing commercial space flight companies or regulators start banning space flight, how will Virgin Galactic and Space X respond? The answer might come as soon as next year.

Image caption: In 1997, a Progress cargo ship crashed into Mir’s Spektr module during an experimental docking maneuver. What would happen if a commercial vehicle did the same? (Credits: NASA).

John Kuo is a writer for NerdWallet’s Investing team.

  • T. Sgobba

    Good article, but misleading title. Dragon will service the ISS on behalf of NASA. If dragon crashes on ISS, in accordance with the cross waiver of liability signed as part of the ISS Intergovernmental agreement, each party (US Government for Space X) will bear the relevant costs.