COMMERCIAL SPACE 

LAUNCHES

FAA’s Risk Assessment 

Process Is Not Yet Updated

Statement of Alicia Puente Cackley, Director, 

Financial Markets and Community Investment

Testimony 

Before the Subcommittee on Space, 

Committee on Science, Space, and 

Technology, House of Representatives

For Release on Delivery 

Expected at 2:00 p.m. EST

February 4, 2014

GAO-14-328T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-328T, a testimony 

before the Committee on Science, Space, and 

Technology. 

February 2014

COMMERCIAL SPACE LAUNCHES

FAA's Risk Assessment Process Is Not Yet Updated

Why GAO Did This Study

A catastrophic commercial launch 

accident could result in injuries or 

property damage to the uninvolved 

public, or “third parties.” In anticipation 

of such an event, a launch company 

must purchase a fixed amount of 

insurance for each launch, per 

calculation by FAA; the federal 

government is potentially liable for 

claims above that amount up to an 

additional $1.5 billion, adjusted for 

inflation, subject to congressional 

appropriations. As of 2013, the 

inflation-adjusted amount is about $3

billion. CSLA provides for this 

payment, called indemnification. 

This testimony is based on a July 2012 

report and January 2014 updates to 

FAA launch data, FAA progress on 

implementing GAO recommendations, 

and insurance industry capacity. It 

discusses (1) the U.S. government’s 

indemnification policy compared to 

policies of other countries, (2) the 

federal government’s potential costs 

for indemnification, (3) the ability and 

willingness of the insurance market to 

provide additional coverage, and (4) 

the effects of ending indemnification on 

the competitiveness of U.S. launch 

companies. 

What GAO Recommends

GAO continues to believe that its July 

2012 recommendation that FAA 

periodically review and update as 

appropriate its methodology for 

calculating launch providers’ insurance 

requirements has merit and should be 

fully implemented.

What GAO Found

According to studies, the United States in 2012 provided less commercial space 

launch indemnification for third party losses than China, France, and Russia. 

These countries put no limit on the amount of government indemnification 

coverage which in the U.S. is limited by the Commercial Space Launch Act 

(CSLA). Governments’ commitments to pay have never been tested because 

there has not been a third party claim that exceeded a private launch company’s 

insurance. 

The potential cost to the federal government of indemnifying third party losses is 

currently unclear. This is because it depends in part on the method used by the 

Federal Aviation Administration (FAA) to calculate the amount of insurance that 

launch companies must purchase, which may not be sound. FAA had 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 was outdated. An inaccurate calculation that understates the 

amount of insurance a launch provider must obtain would increase the likelihood 

of costs to the federal government; a calculation that overstates the amount of 

insurance needed would raise the cost of insurance for the launch provider. FAA 

officials said that their method was reasonable and conservative, but agreed that 

a review could be beneficial and that involving outside experts might be helpful. 

FAA officials said that subsequent to GAO’s 2012 report they have taken initial

steps to improve their methodology for estimating probable losses. 

The insurance market is generally willing and able to provide up to about $500 

million per launch as coverage for third party liability, according to industry 

representatives. Because the amount of insurance FAA requires launch 

providers to obtain averages about $82 million per launch, and coverage 

available through CSLA is about $3 billion above that, insurers could provide 

some of the coverage currently available through CSLA. However, the amount 

and price of insurance that could be provided could change quickly if a large loss 

were to occur, according to insurance industry representatives.

The effects on global competition from the United States eliminating CSLA 

indemnification are unknown. However, launch companies and customers GAO 

contacted believe that ending federal indemnification could lead to higher launch 

prices for U.S.-based launch companies, making them less price competitive 

than foreign launch companies. Although the cost of third party liability insurance 

for launch companies has been about 1 percent of the dollar amount of coverage 

they purchased, how much this cost might increase in the absence of federal 

coverage is not clear. Launch customers said that price and vehicle reliability 

were key factors in their choice of a launch company. Launch companies 

reported that additional costs would be passed along to customers, but whether 

this increase alone would be sufficient reason for a launch customer to choose a 

foreign company over a U.S. company is not clear.

View GAO-14-328T. For more information, 

contact Alicia Puente Cackley at (202) 512-

8678 or cackleya@gao.gov or Gerald L. 

Dillingham, Ph.D. at (202) 512-2834 or 

dillinghamg@gao.gov. 
 

Page 2 GAO-14-328T 

Chairman Palazzo, Ranking Member Edwards, and Members of the 

Subcommittee:

Thank you very much for the opportunity to testify today on commercial 

space launch indemnification as you consider the future of the federal role 

in this area. The Commercial Space Launch Act Amendments of 19881

amended the Commercial Space Launch Act (CSLA)2 and provides 

federal indemnification of third party damages resulting from commercial 

space launches and have recently been reauthorized until the end of 

2016. This legislation made the federal government responsible, subject 

to an appropriation provided by Congress, for a portion of third party 

liability claims that arise from a catastrophic launch-related incident that 

results in injury or damage to uninvolved people or property.3

 

1

Pub. L. No. 100-657, 102 Stat. 3903 (1988).

The goal 

was to provide a competitive environment for the U.S. commercial space 

launch industry by providing, among other things, government indemnity 

while still minimizing the cost to taxpayers. As figure 1 shows, although 

the number of U.S. commercial launches, which are licensed by the 

Federal Aviation Administration (FAA), has generally declined since its 

peak of 17 in 1998, two launches occurred in 2012 which were procured 

by the National Aeronautics and Space Administration (NASA) as part of 

their commercial cargo transportation services to the International Space 

Station (ISS). NASA also intends to procure commercial manned 

launches to carry its astronauts to the ISS beginning in 2017. In addition, 

a number of companies are developing new launch vehicles that could 

provide these orbital services. Other companies are developing suborbital 

vehicles that could carry passengers for space tourism flights.

2

Commercial Space Launch Act, Pub. L. No. 98-575, 98 Stat. 3055 (1984).

3

51 U.S.C. § 50915.
 

Page 3 GAO-14-328T 

Figure 1: Annual Number of Commercial U.S. Space Launches, 1997-2012

This statement is based primarily on a July 2012 report we completed at 

the request of this committee and the Senate Committee on Commerce, 

Science, and Transportation and related updates we conducted in 

January 2014 by reviewing FAA launch data and speaking with FAA 

officials as well as a commercial space launch insurance industry 

representative. This statement discusses (1) the U.S. government’s 

indemnification policy compared to policies of other countries, (2) the 

federal government’s potential costs for indemnification, (3) the ability and 

willingness of the insurance market to provide additional coverage, and 

(4) the effects of ending indemnification on the competitiveness of U.S. 

launch companies. For the 2012 report, we reviewed launch data from 

FAA and performed a literature search. We also reviewed documents 

from and conducted interviews with insurance brokers and underwriters 

who provide commercial launch companies with coverage for third party 

liability, experts in commercial space launch liability issues and risk 

management, representatives from launch companies and customers, 

and officials from FAA and NASA. Additional information on our 

methodology is provided in our July 2012 report. 

The work upon which this testimony was based was conducted in 

accordance with generally accepted government auditing standards. 
 

Page 4 GAO-14-328T 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

The 1988 amendments to CSLA established the current U.S. policy to 

provide federal payment, subject to appropriations—known as 

indemnification—for a portion of claims by third parties for injury, damage, 

or loss that result from a commercial launch-related incident.4 All FAAlicensed commercial launches and reentries by U.S. companies, whether 

unmanned or manned and from the United States or overseas, are 

covered by federal indemnification for third party damages that result from 

the launch or reentries.

5 Parties involved in launches—for example, 

passengers and crew—are not eligible for indemnification coverage.6

U.S. indemnification policy has a three-tier approach for sharing liability 

between the government and the private sector to cover third party 

claims:

• The first tier of coverage is the responsibility of the launch company 

and is handled under an insurance policy purchased by the launch 

company. As part of FAA’s process for issuing a license for a 

commercial launch or landing, the agency determines the amount of 

third party liability insurance a launch company is required to 

purchase so the launch company can compensate third parties for 

any claims for damages that occur as a result of activities carried out 

under the license.7

 

4

51 U.S.C. § 50915. 

FAA calculates the insurance amount to reflect the 

5

51 U.S.C. § 50914(a)(1)(A). 

6

A crew includes any employee who performs activities directly relating to the launch, 

reentry, or other operation relating to the vehicle that carries human beings. 51 U.S.C. § 

50902(2). A passenger—also called a spaceflight participant—is an individual who is not 

crew, carried aboard a launch vehicle or reentry vehicle. 51 U.S.C. § 50902(17).

7

14 C.F.R. § 440.9.

Background

U.S. Indemnification Policy
 

Page 5 GAO-14-328T 

maximum probable loss that is likely to occur because of an accident 

that results in third party damages, including deaths and injuries on 

the ground and damage to property from spacecraft debris.8

 FAA 

uses a statistical approach to estimate expected losses based on 

estimated probabilities that a catastrophic incident could occur and 

the estimated costs of a catastrophic incident given the details of the 

specific launch. This first tier of required insurance coverage is 

capped at a maximum of $500 million for third party damages.9

• The second tier of coverage is provided by the U.S. government, and 

it covers any third party claims in excess of the specific first tier 

amount up to a limit of $1.5 billion adjusted for post-1988 inflation; in 

2013, the inflation-adjusted amount was approximately $3 billion.10

For the federal government to be liable for these claims, Congress 

would need to appropriate funds. This second tier of coverage will 

expire in December 2016 unless Congress extends this date.

11

• The third tier of coverage is for third party claims in excess of the 

second tier—that is, the federal coverage of $1.5 billion above the first 

tier, adjusted for inflation. Like the first tier, this third tier is the 

responsibility of the launch company, which may seek insurance 

above the required first tier amount for this coverage. Unlike the first 

tier, no insurance is required under federal law.

(The 

other two tiers have no expiration date.)

Another component of U.S. indemnification policy for commercial space 

launches and reentries is cross waivers. They provide that each party 

involved in a launch (such as the launch company, the spacecraft 

manufacturer, and the customer) agrees not to bring claims against the 

other parties and assumes financial responsibility for damage to its own 

 

8

FAA makes this determination for each space launch by reviewing the specific 

circumstances of the launch, including the planned launch vehicle, launch site, payload or 

cargo, flight path, and the potential casualties and fatalities that could result from varying 

types of launch failures at different points along that path. FAA estimates the total cost of 

estimated casualties from a launch failure and uses this information as the basis for 

determining property damage. 

9

51 U.S.C. § 50914(a)(3)(A)(i). 

1051 U.S.C. § 50915(a)(1). 

1151 U.S.C. § 50915(f).
 

Page 6 GAO-14-328T 

property or loss or injury sustained by its own employees.12

According to FAA, no FAA-licensed commercial space launch since 1989 

has resulted in casualties or substantial property damage to third parties. 

In the event of a third party claim that exceeded the launch provider’s 

first-tier coverage, FAA would be involved in any negotiations, according 

to FAA officials, and the Secretary of Transportation must approve any 

settlement.

Cross waivers 

also do not have an expiration date.

13

From 2002 through 2012, U.S. companies conducted approximately 16 

percent of commercial space launches worldwide, while Russia 

conducted 42 percent and France’s launch company conducted 25 

percent. Figure 2 shows the trend in number of commercial space 

launches over the last 11 years.

 

1251 U.S.C. § 50914(a)(4).

1351 U.S.C. § 50915(b)(3). 

Global Commercial Space 

Launch Industry
 

Page 7 GAO-14-328T 

Figure 2: Number of Commercial Space Launches Worldwide, 2002-2012

Note: The multinational launches include Sea Launch, a multinational consortium that is licensed by 

FAA because one of its principals is a U.S company.

Over the past several years Russian and French launches have 

generated the most revenues, followed by U.S. launches. In 9 of the last 

11 years, U.S. commercial launch companies generated less revenue 

than launches in either Russia or France. U.S. companies generated no 

commercial launch revenue in 2011 because they conducted no 

launches. (See fig. 3.)
 

Page 8 GAO-14-328T 

Figure 3: Commercial Space Launch Revenues Worldwide, 2002-2012

Note: India is not included in this figure due to its small amount of revenues.
 

Page 9 GAO-14-328T 

As of July 2012, the United States provided less total third party liability 

coverage than China, France, or Russia—the primary countries that have 

conducted commercial space launches in the last 5 years—according to 

published reports.14

China, France, and Russia had a first tier of insurance coverage that a 

commercial launch company must obtain, similar to the United States. 

The second tier of government indemnification varied for these countries:

These countries each had an indemnification regime 

in which the government states that it will assume a greater share of the 

risk compared to that of the United States because each country had a 

two-tiered system with no limit on the amount of government 

indemnification. By comparison, the United States caps government 

indemnification at $1.5 billion adjusted for inflation beyond the first-tier 

insurance amount. However, U.S. government coverage, in some cases, 

begins at a lower level than that of the other countries because U.S. 

coverage begins above the maximum probable loss, which averaged 

about $82 million for active FAA launch and reentry licenses as of 2012, 

and ranged from about $3 million to $267 million. The level at which 

government coverage begins for the other three countries ranged from 

$79 million to $300 million.

• The Chinese government provided indemnification for third party 

claims over $100 million.

• The French government provided indemnification for third party claims 

over 60 million euros (about $75 million as of May 2012).

• The Russian government provided indemnification for third party 

claims over $80 million for the smaller Start launch vehicles and $300 

million for the larger Soyuz and Proton vehicles.15

For all these countries, their commitments to pay have never been tested. 

Globally, there has never been a third party claim for damages from a 

 

14In addition, India conducted one commercial space launch during this period, but we 

found conflicting information on the Indian government’s indemnification coverage, and 

therefore we are not including it in this discussion.

15The source for all the government amounts is Aerospace Corporation, Study of the 

Liability Risk-Sharing Regime in the United States for Commercial Space Transportation

(El Segundo, Calif.: August 2006) or FAA, Liability Risk-Sharing Regime for U.S. 

Commercial Space Transportation: Study and Analysis (Washington, D.C.: April 2002).

The United States 

Provides Less 

Liability Coverage 

Than Foreign 

Competitors Due to a 

Cap on Government 

Indemnification
 

Page 10 GAO-14-328T 

commercial space launch failure that reached second-tier government 

coverage.

The federal government’s potential costs under CSLA depend on (1) the 

occurrence of a catastrophic launch failure with third party claims that 

exceed the first tier of coverage and (2) Congress appropriating funds to 

cover the government’s liability under the second tier of coverage. FAA 

officials stated that no FAA-licensed commercial space launches or 

reentries have resulted in casualties or substantial property damage to 

third parties. As a result, FAA believed that it is highly unlikely that there 

will be any costs to the federal government under CSLA. In the event that 

a catastrophic failure did occur, FAA’s maximum probable loss calculation 

was intended to estimate the maximum losses likely to occur from a 

commercial space launch and determine the amount of third party losses 

against which launch companies must protect. In calculating maximum 

probable loss, FAA aimed to include estimates of losses from events 

having greater than a 1 in 10 million chance of occurring, meaning that 

losses are very unlikely to exceed launch companies’ private insurance 

and become potential costs for the government under CSLA.

Under CSLA, if a rare catastrophic event were to occur which resulted in 

losses exceeding private insurance coverage, the government would be 

responsible for paying claims that exceeded FAA’s maximum probable 

loss only if Congress provided appropriations for this purpose. Under 

CSLA, the federal government does not incur a legal liability unless an 

appropriation is made for this purpose.16

 

16CSLA requires the Secretary of Transportation to provide for the payment of specific 

types of successful third party claims to the extent provided in advance in an appropriation 

act or to the extent additional legislative authority is enacted providing for paying for 

claims in a compensation plan submitted to Congress by the President. 51 U.S.C. § 50915 

(a)(1). 

Accordingly, an obligation would 

Potential Cost of 

Indemnification by the 

Federal Government 

Depends on a Variety 

of Factors

Catastrophic Events and 

Congressional 

Appropriations
 

Page 11 GAO-14-328T 

not be recorded in the federal budget unless and until such an 

appropriation is made. While an obligation is not incurred or recorded for 

potential CSLA losses until an appropriation is provided, some insurance 

companies told us that they expect the government to pay losses that 

become eligible for coverage under CSLA.

While it is very difficult to assess catastrophic failures that have low 

probabilities but potentially high losses, FAA’s use of an appropriate 

process for determining the maximum probable loss is important because 

the maximum probable loss sets the point at which losses become 

potential costs to the government under CSLA. For our July 2012 report,

we identified several issues that raised questions about the soundness of 

FAA’s maximum probable loss methodology:

• FAA used a figure of $3 million when estimating the cost of a single 

potential casualty—that includes either injury or death—which FAA 

officials said had not been updated since they began using it in 1988. 

Two insurers, as well as representatives of two companies that 

specialize in estimating damages from catastrophic events (modeling 

companies), said that this figure is likely understated. Because this 

number had not been adjusted for inflation or updated in other ways, it 

may not adequately represent the current cost of injury or death 

caused by commercial space launch failures. Having a reasonable 

casualty estimate can affect FAA’s maximum probable loss 

calculation and could affect the potential cost to the government from 

third party claims.

• FAA’s methodology for determining potential property damage from a 

commercial space launch started with the total cost of casualties and 

added a flat 50 percent to that cost as the estimate of property 

damage, rather than specifically analyzing the number and value of 

properties that could be affected in the event of a launch failure. One 

insurer and two risk modelers said that FAA’s approach is unusual 

and generally not used to estimate potential losses from catastrophic 

events. For example, officials from both modeling companies noted 

that the more common approach is to model the property losses first 

and derive the casualty estimates from the estimated property losses. 

For example, if a property loss scenario involves the collapse of a 

building, that scenario would have a different casualty expectation 

than a scenario that did not involve such a collapse. One modeler 

stated that FAA’s method might significantly understate the number of 

potential casualties, noting that an event that has a less than 1 in 10 

Maximum Probable Loss 

Soundness
 

Page 12 GAO-14-328T 

million chance of occurring is likely to involve significantly more 

casualties than predicted under FAA’s approach. Moreover, a 2007 

FAA review conducted with outside consultants said that this 

approach is not recommended because of observed instances where 

casualties were low yet forecasted property losses were very large.17

• More broadly, FAA’s method did not incorporate what is known in the 

insurance industry as “catastrophe modeling.” One modeler told us 

that catastrophe modeling has matured over the last 25 years—as a 

result of better data, more scientific research, and advances in 

computing—and has become standard practice in the insurance and 

reinsurance industries.18 Catastrophe models consist of two 

components: a computer program that mathematically simulates the 

type of event being insured against and a highly detailed database of 

properties that could potentially be exposed to loss. Tens of 

thousands or more computer simulations are generated to create a 

distribution of potential losses and the simulated probability of 

different levels of loss.19

FAA officials told us that they had considered the possibility of using a 

catastrophe model. However, they expressed concern about whether the 

more sophisticated approach would be more accurate, given the great 

uncertainty about the assumptions, such as the probability and size of 

potential damages that must be made with any model. Also, industry 

experts told us that a significant cost factor in catastrophe modeling is 

creating and maintaining a detailed database of exposed properties. One 

expert told us that in order for FAA to do such modeling, it would need to 

purchase a property exposure database, which could cost hundreds of 

thousands of dollars. Experts also disagreed on how feasible it would be 

to mathematically model the potential damages associated with space 

launches. One expert thought such modeling would not be credible 

In contrast, FAA’s method involves 

estimating a single loss scenario.

 

17For more information on FAA’s methodology, see J.D. Collins, C.P. Brinkman, and C.L. 

Carbon, ACTA Inc., and FAA, Determination of Maximum Probable Loss (2007).

18Reinsurance is essentially insurance for insurers—that is, insurance companies buy 

coverage for all or a part of a policy’s liability from other insurers in order to offset 

exposure. 

19The probability distribution of losses is typically presented in what is known as an 

exceedance probability curve, which shows the probability of losses exceeding various 

levels.
 

Page 13 GAO-14-328T 

because the necessary knowledge of the factors that can influence a 

space launch is not at the same level as the more developed research for 

modeling hurricanes, for example. Another expert thought that it would be 

possible to develop credible space launch simulation models. Another 

expert stated that such models have not been developed to date because 

of the government-provided indemnity coverage; this expert believed that 

if such coverage were the responsibility of the private sector, the 

necessary models might be developed.

FAA officials also said that they believed the maximum probable loss 

methodology is reasonable and produces conservative results for several 

reasons. First, FAA officials described a 2002 study on aviation casualty 

costs to support its use of a $3 million casualty figure for its calculation. 

Use of a casualty estimate that is based on 2002 data, however, still 

raises questions about whether this figure is outdated, which could result 

in underestimating the cost of casualties. Second, to support basing the 

potential cost of property damage on the potential cost of casualties, FAA 

officials said that they have conducted internal analyses using alternative 

methodologies—including some that assessed property values in the 

vicinity of launches—and compared them to their current methodology. In 

each case, officials said that the current methodology produced higher, or 

more conservative, maximum probable losses. We were unable to review 

or verify these analyses, however, because FAA officials said that these 

analyses were done informally and were not documented.

FAA officials acknowledged that updating the $3 million casualty figure 

and conducting analyses of potential property damage (rather than using 

a casualty cost adjustment factor of 50 percent) might produce more 

precise estimates of maximum probable losses. However, they said that 

because the probabilities assigned to such losses are still rough 

estimates, whether taking these actions would increase the accuracy of 

their maximum probable loss calculations is uncertain. Overall, they said, 

use of more sophisticated methodologies would have to be balanced with 

the additional costs to both FAA and the launch companies that would 

result from requiring and analyzing additional data. For example, a new 

methodology might require either FAA or the launch company to gather 

current property information, and might necessitate that FAA construct a 

statistical model for analyzing potential losses.

The same officials noted that they periodically evaluated their current 

maximum probable loss methodology, but acknowledged that they have 

not used outside experts or risk modelers for this purpose. They agreed 

that such a review could be beneficial, and that involvement of outside 
 

Page 14 GAO-14-328T 

experts might be helpful for improving their maximum probable loss 

methodology. FAA’s 2007 review of potential alternatives identified a 

number of criteria for a sound maximum probable loss methodology that 

could be useful in such a review. These included, among other things, 

that the process use a valid risk analysis, be logical and lead to a rational 

conclusion, and avoid being overly conservative or under conservative. A 

sound maximum probable loss calculation can be beneficial to both the 

government and launch companies because it can help ensure that the 

government is not exposed to greater costs than intended (such as might 

occur through an understated maximum probable loss) and help ensure 

that launch companies are not required to purchase more insurance 

coverage than necessary (such as might occur through an overstated 

maximum probable loss).

In our July 2012 report, we recommended that FAA take steps to better 

ensure the accuracy of the process it uses to determine amount of 

insurance coverage required for an FAA launch license by reviewing and 

periodically reassessing its maximum probable loss methodology—

including the reasonableness of the assumptions used. For these 

reviews, we recommended that FAA consider using external experts such 

as risk modelers, document the outcomes, and adjust the methodology, 

as appropriate, considering the costs. In January 2014, FAA officials told 

us about their recent efforts to reassess the methodology. First, officials 

have begun to implement an internal effort to develop an improved 

methodology for determining maximum probable loss. While budget 

constraints limited progress in 2013 to work with a contractor on the new 

methodology, the passage of the Consolidated Appropriations Act of 2014 

in January 2014 provides FAA with resources to fund the effort which they 

say they intend to do beginning in March 2014. Second, FAA solicited 

input from FAA’s Commercial Space Transportation Advisory Committee 

on how to best conduct an external review of their methodology. In 

January 2014, FAA officials said they held an initial meeting in January 

2013 to begin this process, but as of January 2014, they still did not have 

funds available to solicit an outside review. 
 

Page 15 GAO-14-328T 

In our prior review, some insurers and brokers suggested that the 

maximum amount of private sector third party liability coverage the 

industry is currently willing to provide was generally around $500 million 

per launch. This amount, or capacity, is determined by the amount of their 

own capital that individual insurers are willing to risk by selling this type of 

coverage. According to some insurers and brokers with whom we spoke, 

commercial space launch third party liability coverage is a specialized 

market involving a relatively small number of insurers that each assumes 

a portion of the risk for each launch. One broker said that no launch 

company thus far had pursued private sector insurance protection above 

$500 million. Two insurers said that there might be slightly more coverage 

available beyond $500 million, and one said that up to $1 billion per 

launch in liability coverage might be possible in the private insurance 

market. For this statement, we contacted one of those insurers, who 

indicated that current capacity is still approximately $500 million.

The cost to launch companies for purchasing third party liability 

insurance, according to some brokers and one insurer, was 

approximately 1 percent or less of the total coverage amount. According 

to FAA data on commercial launches, the average maximum probable 

loss is about $82 million. As a result, in the absence of CSLA 

indemnification, insurers could still provide some of the coverage 

currently available through the government under CSLA. For example, if 

the maximum probable loss for a launch is $100 million and the insurance 

industry is willing to offer up to $500 million in coverage, the private 

market could potentially provide $400 million in additional coverage.

According to some insurers, brokers, and insurance experts with whom 

we spoke, there were a number of reasons why private sector insurers 

Current Private 

Market Capacity for 

Coverage Is 

Generally $500 

Million per Launch, 

but a Large Loss 

Could Decrease 

Capacity

Private Capacity
 

Page 16 GAO-14-328T 

were generally unwilling to offer more third party liability coverage than 

$500 million per launch.

• First, these brokers and insurers said that worldwide capacity for third 

party liability coverage was generally limited to $500 million per 

launch, which some considered a significant amount of coverage and 

a challenging amount to put together—particularly given that the 

number of insurers in the space launch market was relatively small.

• Second, according to these same officials, insurers were unwilling to 

expose their capital above certain amounts for coverage that at least 

currently brings in small amounts of premium relative to the potential 

payouts for losses. For example, they said that losses from a 

catastrophic launch accident could exceed many years of third party 

liability policy premiums and jeopardize insurers’ solvency.

• Third, according to some insurers and brokers with whom we spoke, 

to have sufficient capital to pay for losses above $500 million per 

launch would require insurers to charge policy premiums that would 

likely be unaffordable for space launch companies.

The current amount of private market capacity could change due to loss 

events and changing market conditions, according to some insurance 

industry participants. Some insurers and brokers said that a launch failure 

could affect the level and cost of coverage offered, and that a launch 

failure with significant losses could quickly raise insurance prices and 

reduce capacity, potentially below levels required by FAA’s maximum 

probable loss calculation. However, one risk expert suggested that a 

space launch failure would likely cause liability insurance rates to rise and 

that this might encourage insurers and capital to enter the space launch 

market and cause liability insurance capacity to increase. According to 

FAA, insurers have paid no claims for U.S. commercial launches to date, 

but they have paid some relatively small third party claims for U.S. military 

and NASA launch failures. For example, according to an insurance 

broker, a U.S. Air Force launch failure in 2006 resulted in property 

damage of approximately $30 million. According to NASA, the Space 

Shuttle Columbia accident in 2003 resulted in property damage of 

approximately $1.2 million. Two brokers said that given the low number of 

launches and low probability of catastrophic events, total worldwide 

premiums for space liability coverage are approximately $25 million 

annually, amounts insurers believe are adequate to cover expected 

losses. However, if a large loss occurs, according to two insurers, they 

Changes to Market 

Capacity
 

Page 17 GAO-14-328T 

would likely increase their estimates of the potential losses associated 

with all launches.

Under CSLA, launch companies must purchase coverage to meet FAA’s 

maximum probable loss amount or purchase the maximum amount of 

coverage available in the world market at reasonable cost, as determined 

by FAA.20 The potential cost to the government could increase if losses 

caused insurance prices to rise and insurance amounts available at 

reasonable cost to decrease. Some insurers and brokers also said that 

the amount of insurance the private market is willing to sell for third party 

liability coverage for space launches can also be affected by changes in 

other insurance markets. For example, large losses in aviation insurance 

or in reinsurance markets could decrease the amount of capital insurers 

would be willing to commit to launch events because losses in the other 

markets would decrease the total pools of capital available.

While we had not conducted specific work to analyze the feasibility of 

alternative approaches for providing coverage currently available through 

CSLA, FAA and others had looked at possible alternatives to CSLA 

indemnification and we have examined different methods for addressing 

the risk of catastrophic losses associated with natural disasters and acts 

of terrorism.21

 

2051 U.S.C. § 50914(a)(3). 

These events, like space launch failures, have a low 

probability of occurrence but potentially high losses. Some methods 

involve the private sector, including going beyond the traditional 

insurance industry, in providing coverage, and include the use of 

catastrophe bonds or tax incentives to insurers to develop catastrophe 

surplus funds. Other methods aid those at risk in setting aside funds to 

cover their own and possibly others’ losses, such as through self21See FAA, Liability and Risk-Sharing Regime for U.S. Commercial Space Transportation: 

Study and Analysis, and Aerospace Corporation, Study of the Liability Risk-Sharing 

Regime in the United States for Commercial Space Transportation. See also GAO, 

Catastrophe Insurance Risks: The Role of Risk-Linked Securities and Factors Affecting 

Their Use, GAO-02-941 (Washington, D.C.: Sept. 24, 2002); Catastrophe Insurance 

Risks: The Role of Risk-Linked Securities, GAO-03-195T (Washington, D.C.: Oct. 8, 

2002); and GAO, Natural Disasters: Public Policy Options for Changing the Federal Role 

in Natural Catastrophe Insurance, GAO-08-7 (Washington, D.C.: Nov. 26, 2007).

Alternatives for Addressing 

Space Launch Risk
 

Page 18 GAO-14-328T 

insurance or risk pools.22 Still other methods, such as those used for flood 

and terrorism insurance, involve the government in either providing 

subsidized coverage or acting as a backstop to private insurers.23

Use of any such alternatives could be complex and would require a 

systematic consideration of their feasibility and appropriateness for third 

party liability insurance for space launches. For example, according to a 

broker and a risk expert, a lack of loss experience complicates possible 

ways of addressing commercial space launch third party liability risk, and 

according to another risk expert, any alternative approaches for managing 

this risk would need to consider key factors, including the

• number of commercial space launch companies and insurers and 

annual launches among which to spread risk and other associated 

costs; 

• lack of launch and loss experience and its impact on predicting and 

measuring risk, particularly for catastrophic losses; and

• potential cost to private insurers, launch companies and their 

customers, and the federal government.

As such, alternatives could potentially require a significant amount of time 

to implement.

 

22See GAO, Catastrophe Insurance Risks: Status of Efforts to Securitize Natural 

Catastrophe and Terrorism Risk, GAO-03-1033 (Washington, D.C.: Sept. 24, 2003). Selfinsurance occurs when an entity assumes the risk for its losses and can involve the 

formation of an insurance company solely for that purpose. Risk pooling occurs when two 

or more entities agree to set aside funds to help pay for the others’ losses.

23See GAO, Flood Insurance: FEMA’s Rate-Setting Process Warrants Attention, 

GAO-09-12 (Washington, D.C.: Oct. 31, 2008) and Terrorism Insurance: Status of Efforts 

by Policyholders to Obtain Coverage, GAO-08-1057 (Washington, D.C.: Sept. 15, 2008). 
 

Page 19 GAO-14-328T 

Planned increases in manned commercial launches raises a number of 

issues that have implications for the federal government’s indemnification 

policy for third party liability, according to insurance officials and experts 

with whom we spoke. NASA expects to begin procuring manned 

commercial launches to transport astronauts to the ISS in 2017. In 

addition, private companies are also developing space launch vehicles 

that could carry passengers for space tourism flights.

First, the number of launches and reentries covered by federal 

indemnification will increase with NASA’s planned manned launches 

which will be FAA-licensed commercial launches. 24

According to insurance company officials with whom we spoke, the 

potential volume of manned launches and reentries for NASA and for 

space tourism could increase the overall amount of insurance coverage 

NASA expected to 

procure from private launch companies 2 manned launches per year to 

the ISS from 2017 to 2020. In addition, the development of a space 

tourism industry may also increase the number of launches and reentries

covered by federal indemnification, but the timing of tourism launches and 

reentries is uncertain.

 

24NASA-contracted launches for NASA’s science missions are not currently covered by 

CSLA; rather, NASA requires its launch contractors to obtain insurance coverage for third 

party losses. The amount of the insurance required by NASA is the maximum amount 

available in the commercial marketplace at reasonable cost, but does not exceed $500 

million for each launch. The facts and circumstances for claims in excess of this amount 

would be forwarded by NASA to the Congress for its consideration 51 U.S.C. § 20113 (m) 

(2). NASA-contracted launches for the Commercial Resupply Services to the ISS will be 

licensed by the FAA under CSLA, and will be covered by CSLA indemnification. 

Forecasted Increase 

in Manned Launches 

and Reentries Could 

Increase the Potential 

Costs for the Federal 

Government, and 

Current Coverage 

Has a Gap

Issues and Implications 

Relating to Commercial 

Manned Launches and 

Reentries
 

Page 20 GAO-14-328T 

needed by launch companies, which could raise insurance costs, 

including those for third party liability.25

Second, because newly developed manned launch vehicles have less 

launch history they are viewed by the insurance industry as more risky 

than “legacy” launch vehicles. Insurance company officials told us that 

launch vehicles such as United Launch Alliance’s Atlas V, which launches 

satellites and may be used for future manned missions, is seen as less 

risky than newer launch vehicles, such as SpaceX’s Falcon 9, which 

could also be used for manned missions. According to insurance 

company officials with whom we spoke, they expect to charge higher 

insurance premiums for newly developed launch vehicles than legacy 

launch vehicles given their different risk profiles. Insurance company 

officials’ opinions varied as to when a launch vehicle is deemed reliable—

from 5 to 10 successful launches. They also told us that whether vehicles 

are manned is secondary to the launch vehicle’s history and the launch’s 

trajectory—over water or land—in determining risk and the price and 

amount of third party liability coverage.

By increasing the volume of 

launches and reentries, the probability of a catastrophe occurring is also 

increased and any accident that occurs could also increase future 

insurance costs, according to insurance company officials with whom we 

spoke. A catastrophic accident could also result in third party losses over 

the maximum probable loss, which would invoke federal indemnification.

Third, having any people on board a space vehicle raises issues of 

informed consent and cross waivers, which could affect third party liability 

and the potential cost to the federal government. CSLA requires 

passengers and crew on spaceflights to be informed by the launch 

company of the risks involved and to sign a reciprocal waiver of claims 

(also called a cross waiver) with the federal government—which means 

that the party agrees not to seek claims against the federal government if 

an accident occurs. CSLA also requires cross waivers among all involved 

parties in a launch. Two key issues dealing with cross waivers include the 

estates of spaceflight passengers and crew and limits on liability for 

involved parties.

 

25Launch providers obtain insurance in addition to that for third party liability, including 

coverage of assets, such as the launch vehicle.
 

Page 21 GAO-14-328T 

• The estates of spaceflight passengers and crew, which are 

considered third parties to a launch, are not covered by the informed 

consent and cross waiver of claims, according to two insurance 

companies and one legal expert. Although an insurance company 

said that it would be difficult for estates to seek damages in case of an 

accident, the legal expert said that the informed consent requirement 

does not address future litigation issues. Officials from two Insurance 

companies and one expert told us that they expect spaceflight 

passengers to be high-income individuals, which could result in large 

insurance claims by estates of the passengers, as determination of 

the amount of claims is based on an individual’s expected earning 

capacity over his or her lifetime.

• According to two insurance companies and two legal experts, 

requiring cross waivers among passengers, crew, the launch 

company, and other involved parties may not minimize potential third 

party claims as they would not place limitations on liability. An 

insurance company and a legal expert stated that, without a limitation 

on liability, insurance premiums for third party and other launch 

insurance coverage could increase as the same small number of 

insurance companies insures passengers, crew, launch vehicles, as 

well as third parties to a launch. According to FAA, putting a limitation 

on spaceflight passenger liability could foster the development of the 

commercial space launch industry through lower costs for insurance 

and liability exposure. Liability exposure and the related litigation 

impose costs on industries and the limitation on liability shifts the risk 

to spaceflight passengers, who have been informed of the launch 

risks. If limitations on liability were set by federal legislation, it could 

conflict with state law because at least five states had their own space 

liability and indemnity laws limiting liability.26 Launch and insurance 

companies believe that a limit or cap on passenger liability could 

decrease uncertainty and consequently decrease the price of 

insurance, according to a FAA task force report.27

As previously discussed, the potential cost to the government depends on 

the accuracy of the maximum probable loss calculation, which assesses a 

launch’s risk. If the calculation is understated, then the government’s 

 

26Those states are Colorado, Florida, New Mexico, Texas, and Virginia. 

27FAA, FAA’s Response to NASA on the Insurance Task for Commercial Crew

(Washington, D.C.: Apr. 30, 2012).
 

Page 22 GAO-14-328T 

exposure to liability is higher. Thus, whether the launch vehicle is newly 

developed or manned, the effect on the government’s potential cost for 

third party claims is still based on how accurately the maximum probable 

loss calculation assesses launch risks. FAA officials told us that they 

intend to use the same maximum probable loss assessment method for 

manned launches as they currently do with unmanned launches.

Officials from the insurance industry and space launch companies and an 

expert told us that a gap in federal indemnification was the lack of 

coverage of on-orbit activities—that is, activities not related to launch or 

reentry, such as docking with the ISS and relocating a satellite from one 

orbit to another orbit—but they did not agree on the need to close this 

gap. FAA licenses commercial launches and reentries, but does not 

license on-orbit activities. Federal indemnification only applies to FAAlicensed space activities. NASA’s commercial manned launches to the 

ISS that will involve on-orbit activities, including docking with the ISS, will 

be subject to the cross waivers of liability required by agreements with 

participating countries. This cross waiver is not applicable when CSLA is 

applicable, such as during a licensed launch or reentry, and it does not 

address liability for damage to non-ISS parties such as other orbiting 

spacecraft. Claims between NASA and the launch company are not 

affected by the ISS cross waiver and are historically addressed as a 

contractual agreement. In addition, one commercial space launch 

company’s operations will only have suborbital launches and reentries 

and no on-orbit activities that require regulation. Officials from two launch 

companies stated that they did not believe that on-orbit activities need to 

be regulated by FAA or that federal indemnification coverage should be 

provided. However, one insurer noted that other proposed manned 

launches—such as one company’s planned on-orbit “hotel”—will not be 

NASA related and therefore will not be covered by any regulatory regime. 

An expert noted that such a proposal for an on-orbit hotel remains an 

open question regarding regulation and liability exposure. In addition, the 

expert noted that federal oversight of on-orbit activities may be needed to 

provide consistency and coordination among agencies that have on-orbit 

jurisdiction. He pointed out that the Federal Communications Commission 

and the National Oceanic and Atmospheric Administration have 

jurisdiction over their satellites and NASA has jurisdiction over the ISS. 

Thus, according to the expert, there should be one federal agency that 

coordinates regulatory authority over on-orbit activities.

At the time of our July 2012 report, FAA senior agency officials said that 

they might seek statutory authority over on-orbit activities but as of 

Gap in Federal 

Indemnification
 

Page 23 GAO-14-328T 

January 2014 have not done so. An insurer told us that having FAA in 

charge from launch to landing would help ensure that there were no gaps 

in coverage. According to this insurer, this would help bring stability to the 

insurance market in the event of an accident as involved parties would be 

clear on which party is liable for which activities. However, having FAA 

license on-orbit activities would increase the potential costs to the federal 

government for third party claims. If FAA obtains authority to license onorbit activities then the potential costs to the government may increase as 

its exposure to risk increases.

Based on work for our July 2012 report, the actual effects that eliminating 

CSLA indemnification would have on the competitiveness of U.S. 

commercial launch companies are unknown. For example, we do not 

know how insurance premiums or other costs might change as well as the 

availability of coverage. In addition, we do not know whether or to what 

extent launch customers might choose foreign launch companies over 

U.S. companies. Furthermore, it is difficult to separate out the effects of 

withdrawing indemnification on the overall competitiveness of the U.S. 

commercial space launch industry. Many factors affect the industry’s 

competitiveness, including other U.S. government support, such as 

research and development funds, government launch contracts, and use 

of its launch facilities, in addition to the third party indemnification.

While the actual effects on competition of eliminating CSLA 

indemnification are unknown, several launch companies and customers 

with whom we spoke said that in the absence of CSLA indemnification, 

increased risk and higher costs would directly affect launch companies 

and indirectly affect their customers and suppliers. The same participants 

said that two key factors—launch price and launch vehicle reliability—

generally determine the competitiveness of launch companies. According 

to two launch customers, launch prices for similar missions could vary 

dramatically across countries. For example, at the time of our July 2012 

report two customers said that a similar launch might cost about $40 

million to $60 million with a Chinese launch company, about $80 million to 

$100 million with a French launch company, and approximately $120 

million with a U.S. launch company. However, another U.S. launch 

company told us that it was developing a vehicle for a similar launch for 

which it intended to charge about $50 million. Other considerations also 

would be involved in selecting a launch company, according to launch 

customers with whom we spoke. For example, some said that export 

restrictions for U.S. customers could add to their costs or prevent them 

from using certain launch companies. One launch customer also said that 

Ending 

Indemnification Could 

Potentially Decrease 

U.S. Competitiveness
 

Page 24 GAO-14-328T 

it considered the costs of transporting the satellite to the launch site as 

well as other specific aspects of a given launch.

Launch company officials said that the lack of government indemnification 

would decrease their global competitiveness by increasing launch costs. 

Launch company officials said their costs would increase as a result of 

their likely purchase of greater levels of insurance to protect against the 

increased potential for third party losses, as the launch companies 

themselves would be responsible for all potential third party claims, not 

just those up to the maximum probable loss amount. As previously 

discussed, whether the private insurance market has the capacity to 

provide coverage at levels currently provided by the government, or at 

what price they might sell such coverage, is uncertain. Some launch 

company officials said that their costs may also increase if their suppliers 

decided to charge more for their products or services as a result of being 

at greater risk from a lack of CSLA indemnification. That is, to 

compensate for their greater exposure to potential third party claims, 

some suppliers might determine that they need to charge more for their 

products to cover the increased risks they are now assuming. Some 

launch companies told us that they would likely pass additional costs on 

to their customers by increasing launch prices. Two launch customers 

told us that in turn, they would pass on additional costs to their 

customers. Several also told us that they might increase the amount of 

their own third party liability insurance, another cost they might pass on to 

their customers. Two said they might be more likely to choose a foreign 

provider if the price of U.S. launches rose.

According to launch companies and customers we spoke with, ending 

CSLA indemnification would also decrease the competitiveness of U.S. 

launch companies because launch customers would be exposed to more 

risk than if they used launch companies in countries with government 

indemnification. For example, officials from several launch companies 

and customers said that if some aspect of the launch payload is 

determined to have contributed to a launch failure, they could be exposed 

to claims for damages from third parties. Launch customers are currently 

protected from such claims through the CSLA indemnification program. 

Several launch customers with whom we spoke said that without CSLA 

indemnification they might be more likely to use a launch company in a 

country where the government provides third party indemnification.

According to launch companies with whom we spoke, ending CSLA 

indemnification could also have other negative effects. For example, 

some said that the increased potential for significant financial loss for third 
 

Page 25 GAO-14-328T 

party claims could cause launch companies, customers, or suppliers to 

reassess whether the benefits of staying in the launch business outweigh 

the risks. If some companies decided it was no longer worthwhile to be 

involved in the launch business, it could result in lost jobs and industrial 

capacity. Lastly, one industry participant pointed out that some suppliers, 

such as those that build propulsion systems, have to maintain significant 

amounts of manufacturing capacity whether they build one product or 

many. If there are fewer launches, the cost of maintaining that capacity 

will be spread among these fewer launches, resulting in a higher price for 

each launch. To the extent that the federal government is a customer that 

relies on private launch companies for its space launch needs, it too could 

face potentially higher launch costs.

Although the number of commercial launches by U.S. companies has 

been lower in the past few years than in years prior, commercial space is 

a dynamic industry with newly developing space vehicles and missions. 

With the termination of the shuttle program, NASA has begun to procure 

cargo delivery to the ISS from private launch companies and intends to 

use private companies to carry astronauts to the ISS starting in 2017. In 

addition, private launch companies have been developing launch vehicles 

that will eventually carry passengers as part of an emerging space 

tourism industry. Both of these developments would increase the number 

and type of flights eligible for third party liability indemnification under 

CSLA. As the industry changes and grows, continually assessing federal 

liability indemnification policy to ensure that it protects both launch 

companies and the federal government will be important. This 

assessment would be impacted by the amount of coverage the insurance 

industry is willing to provide for space launches, which depends on a 

number of factors including the number of launches and reentries and 

insurers’ ability to evaluate the underlying risks. To the extent insurance 

capacity might increase, it could reduce the need for indemnification 

under CSLA. It is also possible, however, that certain events, such as a 

launch failure with large losses, could reduce insurance industry capacity 

for this type of coverage. Review of potential alternative means for 

addressing the risks associated with space launches, while beyond the 

scope of our work, would also be an important part of any ongoing 

assessment of CSLA indemnification.

Several factors raise questions about FAA’s methodology for determining 

the maximum probable loss for a commercial space launch, which 

determines the amount of insurance coverage launch companies must 

buy and the amount above which government indemnification begins. 

Concluding 

Observations
 

Page 26 GAO-14-328T 

During work for our July 2012 report, FAA said it believed its approach 

was conservative, but acknowledged that parts of the maximum probable 

loss methodology have not been updated, including a dollar amount for 

estimating space launch losses from casualties and fatalities which the 

insurance industry says is outdated. In addition, FAA used this estimate 

of losses from casualties and fatalities as the basis for estimating 

potential property damage, an approach that could underestimate 

property losses. Moreover, FAA had not had outside experts and risk 

modelers review its methodology. FAA officials told us that subsequent to 

our prior report they have taken some initial steps toward revising and 

updating their MPL methodology, but that budget constraints have 

prevented further progress in the short term. FAA officials have recently 

suggested that the Consolidated Appropriations Act of 2014 provides the 

resources to assess the MPL methodology, possibly as soon as March 

2014. We agree with FAA that the benefits of developing and 

implementing a potentially more comprehensive maximum probable loss 

methodology need to be balanced against the possible increased costs to 

the agency and to launch companies. However, the importance of a 

sound calculation makes review of the current methodology a worthwhile 

effort. An inaccurate maximum probable loss value can increase the cost 

to launch companies by requiring them to purchase more coverage than 

is necessary, or result in greater exposure to potential cost for the federal 

government. Thus, we continue to believe that our July 2012 

recommendation that FAA periodically review and update as appropriate 

its methodology for calculating launch providers’ insurance requirements

has merit and should be fully implemented. 

Chairman Palazzo, Ranking Member Edwards, and Members of the 

Subcommittee, this concludes my prepared statement. I would be 

pleased to respond to any questions that you may have at this time.

If you or your staff have any questions about this testimony, please 

contact Alicia Puente Cackley at (202) 512-8678 or cackleya@gao.gov 

or Gerald L. Dillingham, Ph.D. at (202) 512-2834 or 

dillinghamg@gao.gov. 

Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this statement. 

GAO staff who made key contributions to this testimony are, in addition to 

the contacts named above, Teresa Spisak and Patrick Ward (Assistant 

GAO Contacts and 

Staff 

Acknowledgments
 

Page 27 GAO-14-328T 

Directors), Chris Forys, David Hooper, Maureen Luna-Long, Sara Ann 

Moessbauer, and Steve Ruszczyk made key contributions to this report.

(250772)
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