Mind Your Business - 8 October 2008
The Business of Insurance
Case Study: Virgin Galactic
Imagine the problems facing Sir Richard Branson as he tries to get his latest business venture off the ground - literally. Branson is working on developing Virgin Galactic. The plan is to extend the Virgin aviation business into space. Branson has plans to launch flights into space in 2010 for trips lasting two and a half hours, including 15 minutes in space, with five minutes of weightlessness.
Branson is committing $240 million (£138 million) to the project. To date over 85,000 people have registered an interest in the tours - but these are not tours that you will find advertised in your local travel agent. The price for the tour is $200,000 (£100,000), paid in advance. 250 people are reported to have paid the full sum to be the first to experience the flights.
Branson thinks the real competitive advantage will be in the way the aircraft is designed, and that the sense of weightlessness is the thing most people are looking for. The cabin has been designed to allow people to be able to float around rather than remaining seated for this part of the flight.
Sir Richard scoffs at the sceptics who think that the idea will never 'take off' and sees the chance for ordinary people to be able to take part in space tours as being a reality in his lifetime. He points to the fact that a flight between London and New York prior to 1939 would have cost the equivalent of $80,000 (£46,000)!
One of the many problems he will have to face will be the technical challenges of the project but securing the necessary business insurance will also be a major consideration. The risk factor in space travel is high - 1 out of 64 missions have ended in disaster - and this is a risk factor that sends shudders down the spines of insurance brokers everywhere.
A Space Shuttle launch over Cape Canaveral in Florida, January 2008. Shuttle missions have been successful but there has also been tragedy. Challenger exploded 73 seconds into its launch in 1986, killing all seven crew members. The dangers of space travel are clear and could present a real insurance headache for Mr Branson.
Image source: http://www.sxc.hu/photo/930118
Experts believe that Sir Richard would have to get third party insurance cover for everyone living within four-and-a-half miles of the proposed spaceport in New Mexico - just in case debris falls from the sky and hits them. Whether those who actually travel on the craft are able to get insurance cover is highly debatable at the moment. Sir Richard has entered into negotiations with insurance brokers at Lloyds of London to discuss the issues.
Lloyds of London - the centre of the UK insurance industry.
Copyright: Biz/ed images.