Commercial Space Launch Indemnification Outdated: GAO

The federal government's potential cost depends partly on an FAA calculation dating to 1988. So far, the government's commitment hasn't been needed, according a new GAO review.

Who pays for third-party losses if a commercial space launch fails is the subject of a new Government Accountability Office (GAO) report that identifies flaws in the current method used by the federal government to indemnify such losses. The method used by the Federal Aviation Administration to calculate how much insurance launch companies must purchase had not been reviewed by outside experts and is "a calculation that may not be sound," according to GAO.

"FAA has used the same method since 1988 and has not updated crucial components, such as the cost of a casualty. Estimating probable losses from a rare catastrophic event is difficult, and insurance industry officials and risk modeling experts said that FAA's method is outdated," its summary of the report states.

The Commercial Space Launch Act Amendments of 1988 (CSLAA) provides indemnification of third-party losses due to a catastrophic commercial launch failure, but the indemnification provision will expire this year unless it is reauthorized. The U.S. government's indemnification is limited by CSLAA and so far has not been tapped because there has not been a third-party claim that exceeded a private launch company's insurance, according to the report, which says China, France, and Russia offer unlimited government indemnification coverage.

FAA requires launch providers to obtain about $99 million of coverage per launch, on average, and about $2.7 billion more coverage through CSLAA is available. Insurers could provide some of that CSLAA coverage, GAO concluded.

The report says launch companies and customers GAO contacted believe ending federal indemnification could lead to higher launch prices for U.S.-based launch companies; still, launch companies are paying only 1 percent of the dollar amount of coverage they purchase for their third-party liability insurance. The most important factors to customers are price and vehicle reliability, according to the summary.

GAO recommended that FAA periodically review and update its method of calculating the required insurance.

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