COMMERCIAL SPACE 

LAUNCHES

FAA Should Update 

How It Assesses 

Federal Liability Risk

Report to Congressional Committees

July 2012

GAO-12-899

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-899, a report to 

congressional committees 

July 2012

COMMERCIAL SPACE LAUNCHES 

FAA Should Update How It Assesses Federal 

Liability Risk

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 and reentry, 

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 and subject to congressional 

appropriations. As of 2012, the 

inflation-adjusted amount is about $2.7 

billion. CSLAA provides for this 

payment, called indemnification. The 

indemnification provision, unless 

reauthorized, expires this year.

GAO was asked to address, among 

other things, (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. GAO

reviewed FAA data and documents 

and relevant literature and conducted 

interviews with officials from FAA and 

the National Aeronautics and Space 

Administration, insurers, brokers, 

launch companies, launch customers, 

risk modelers, and experts.

What GAO Recommends

GAO recommends that FAA

periodically review and update as 

appropriate its methodology for

calculating launch providers’ insurance

requirements. The Department of 

Transportation provided technical 

clarifications, which GAO incorporated. 

What GAO Found

According to studies, the United States provides 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 United States is limited by the Commercial Space Launch Act 

Amendments of 1988 (CSLAA). 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 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, a calculation that may not be sound. 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. FAA, however, has not had outside experts or risk 

modelers review the appropriateness of its method. 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 they agreed that a review could be beneficial and that involving

outside experts might be helpful. 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 generating and analyzing 

additional data.

The insurance market is generally willing and able to provide up to $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 $99 million per launch, and coverage 

available through CSLAA is about $2.7 billion above that, insurers could provide 

some of the coverage currently available through CSLAA. 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 CSLAA 

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 unclear.

View GAO-12-899. 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 i GAO-12-899 Commercial Space Launches

Letter 1 

Background 4

The United States Provides Less Liability Coverage Than Foreign 

Competitors Because of a Cap on Government Indemnification 9

Potential Cost of Indemnification by the Federal Government 

Depends on a Variety of Factors 10

Private Market Generally Offers $500 Million in Coverage per 

Launch 14

Forecasted Increase in Manned Launches and Reentries Could 

Increase Potential Federal Government Costs; Current Coverage 

Has a Gap 18

Effects Unknown from Ending Indemnification, but Could 

Decrease U.S. Competitiveness 22

Conclusions 24

Recommendation for Executive Action 25

Agency Comments 26

Appendix I Objectives, Scope, and Methodology 27

Appendix II GAO Contacts and Staff Acknowledgments 30

Table

Table 1: Organizations, Agencies, and Experts Interviewed 29

Figures

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

1997 to 2011 2

Figure 2: Number of Commercial Space Launches Worldwide, 2002 

to 2011 7

Figure 3: Commercial Space Launch Revenues Worldwide, 2002 to 

2011 8

Contents
Page ii GAO-12-899 Commercial Space Launches

Abbreviations

CSLAA Commercial Space Launch Act Amendments of 1988

FAA Federal Aviation Administration

ISS International Space Station

NASA National Aeronautics and Space Administration

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-12-899 Commercial Space Launches

United States Government Accountability Office

Washington, DC 20548

July 30, 2012

The Honorable John D. Rockefeller IV

Chairman

The Honorable Kay Bailey Hutchison

Ranking Member

Committee on Commerce, Science, and Transportation

United States Senate

The Honorable Ralph M. Hall

Chairman

The Honorable Eddie Bernice Johnson 

Ranking Member

Committee on Science, Space, and Technology

House of Representatives

The Commercial Space Launch Act Amendments of 1988 (CSLAA)1

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, or “third parties.”2

 

1

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

This 

indemnification provision will expire at the end of 2012. 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, the number of 

U.S. commercial launches, which are licensed by the Federal Aviation 

Administration (FAA), reached a peak of 17 in 1998.

2

51 U.S.C. § 50915.

 
 

Page 2 GAO-12-899 Commercial Space Launches

Figure 1: Annual Number of Commercial U.S. Space Launches, 1997 to 2011

Although the number of U.S. commercial space launches has fallen in 

recent years, it is reasonable to expect an increase in the years ahead. 

The National Aeronautics and Space Administration (NASA) plans to 

begin procuring commercial cargo transportation services to the 

International Space Station (ISS) in 2012 and intends to procure 

commercial manned launches to carry its astronauts to the ISS beginning 

in 2017.3 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. 

 

3

All commercial missions for NASA thus far have been demonstration missions conducted 

under Space Act agreements, which involve NASA providing significant funds to private 

industry partners to stimulate the development of large-scale commercial space 

transportation capabilities. NASA has procured transportation services to the ISS to begin 

later in 2012 through traditional contractual arrangements. For more information on Space 

Act agreements, see GAO, Key Controls NASA Employs to Guide Use and Management 

of Funded Space Act Agreements Are Generally Sufficient, but Some Could Be 

Strengthened and Clarified, GAO-12-230R (Washington, D.C.: Nov. 17, 2011).
 

Page 3 GAO-12-899 Commercial Space Launches

In this context, you asked us to address the following objectives:

• how the current U.S. commercial space launch indemnification policy 

compares to other countries’ policies;

• the federal government’s potential costs under CSLAA;

• the extent to which the insurance market is able and willing to provide 

third party liability insurance at levels currently provided by CSLAA;

• the implications of commercial manned launches for the current 

federal indemnification policy, including the gaps, if any, that exist in 

that policy and the potential financial risks those gaps pose; and

• what is known about the direct and indirect effects that ending 

indemnification would have on the competitiveness of U.S. 

commercial launch companies.

For this work, 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. We also reviewed past GAO work.4

We conducted this performance audit from November 2011 to July 2012 

in accordance with generally accepted government auditing standards. 

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.

Additional 

information on our methodology is provided in appendix I.

 

4

GAO, Commercial Space Launch Act: Preliminary Information on Issues to Consider for 

Reauthorization, GAO-12-767T (Washington, D.C.: June 6, 2012) and Commercial Space 

Transportation: Industry Trends, Government Challenges, and International 

Competitiveness Issues, GAO-12-836T (Washington, D.C.: June 20, 2012). 
 

Page 4 GAO-12-899 Commercial Space Launches

CSLAA established the current U.S. policy to provide federal payment, 

subject to appropriation—known as indemnification—for a portion of 

claims by third parties for injury, damage, or loss that result from a 

commercial launch-related incident. All FAA-licensed 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 

reentry.5 Launches and reentries by foreign entities are also licensed by 

the FAA if they take place from or into the United States and are covered 

by federal indemnification. Parties involved in launches and reentries—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 reentry, 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. FAA calculates the insurance amount to reflect the 

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

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

 

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).

Background 

U.S. Indemnification 

Policy
 

Page 5 GAO-12-899 Commercial Space Launches

the ground and damage to property from spacecraft debris.7 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.8

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

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 2012, the 

inflation-adjusted amount was approximately $2.7 billion.9 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 2012 unless Congress reauthorizes it.10 (The other two 

tiers have no expiration date.)

• 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.

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 

 

7

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

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

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. 51 U.S.C. § 50914(c).

8

51 U.S.C. § 50914(a)(3)(A)(i).

9

51 U.S.C. § 50915(a)(1). 

1051 U.S.C. § 50915(f).
 

Page 6 GAO-12-899 Commercial Space Launches

property or loss or injury sustained by its own employees.11

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

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

Orbital launches have taken place over the ocean from launch sites not 

located near densely populated urban areas. 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.

12

From 2002 through 2011, U.S. companies conducted approximately 17 

percent of commercial space launches worldwide, while Russia 

conducted 43 percent and France’s launch company conducted 24 

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

launches over the last 10 years.

 

1151 U.S.C. § 50914(a)(4).

1251 U.S.C. § 50915(b)(3). 

Global Commercial Space 

Launch Industry
 

Page 7 GAO-12-899 Commercial Space Launches

Figure 2: Number of Commercial Space Launches Worldwide, 2002 to 2011

Note: The multinational launches were conducted by Sea Launch, which is a multinational consortium 

that launches from a modified oil-drilling platform at sea and 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. Moreover, in 8 

of the last 10 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-12-899 Commercial Space Launches

Figure 3: Commercial Space Launch Revenues Worldwide, 2002 to 2011

Note: India is not included in this figure because it earned a small amount of revenue—$11 million in 

2007—the only year it had a commercial launch.
 

Page 9 GAO-12-899 Commercial Space Launches

The United States provides 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.13

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

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

The second tier of government indemnification varies for these countries:

These countries each have 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 has a twotiered 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 estimated maximum probable loss, which averaged about $99 

million for active FAA launch and reentry licenses as of January 2012 and 

ranged from about $23 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 provides indemnification for third party 

claims over $100 million.

• The French government provides indemnification for third party claims 

over 60 million euros (about $75 million in foreign exchange 

conversion as of May 2012).

• The Russian government provides indemnification for third party 

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

million for the larger Soyuz and Proton vehicles.14

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 

 

13In 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.

14The source for all the government amounts is The 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 Because 

of a Cap on 

Government 

Indemnification 
 

Page 10 GAO-12-899 Commercial Space Launches

commercial space launch failure that reached second-tier government 

coverage.

The federal government’s potential costs under CSLAA 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 believes that it is highly unlikely that there 

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

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

calculation is intended to estimate the maximum losses likely to occur 

from a commercial space launch or reentry and determine the amount of 

third party losses against which launch companies must protect. In 

calculating maximum probable loss, FAA aims 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 CSLAA.

Under CSLAA, if a rare catastrophic event were to occur whose losses 

exceeded 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 

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

Potential Cost of 

Indemnification by 

the Federal 

Government Depends 

on a Variety of 

Factors 

Catastrophic Events and 

Congressional 

Appropriations 
 

Page 11 GAO-12-899 Commercial Space Launches

appropriation is made for this purpose.15 Accordingly, an obligation would 

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 CSLAA 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 CSLAA.

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 CSLAA. Several issues raise 

questions about the soundness of FAA’s maximum probable loss 

methodology:

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

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

officials said has 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 has 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 starts with the total cost of casualties and 

adds 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 

 

15CSLAA 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 

law 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). 

Maximum Probable Loss 

Soundness 
 

Page 12 GAO-12-899 Commercial Space Launches

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 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.16

• More broadly, FAA’s method does 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.17 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.18

FAA officials told us that they have 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 

In contrast, FAA’s method involves 

estimating a single loss scenario.

 

16For 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).

17Reinsurance 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. 

18The 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-12-899 Commercial Space Launches

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 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 about how feasible it would 

be to mathematically model the potential damages associated with space 

launches. One expert thought such modeling would not be credible 

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 believe 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 in its methodology. 

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 
 

Page 14 GAO-12-899 Commercial Space Launches

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 evaluate 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 

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).

Some insurers and brokers suggested that the maximum amount of 

private sector third party liability coverage the industry is currently willing 

to provide is 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 assume a portion of the risk 

for each launch. One broker said that no launch company thus far has 

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.

Private Market 

Generally Offers $500 

Million in Coverage 

per Launch

Private Capacity
 

Page 15 GAO-12-899 Commercial Space Launches

The cost to launch companies for purchasing third party liability 

insurance, according to some brokers and one insurer, is approximately 1 

percent or less of the total coverage amount. According to FAA data on 

commercial launches, the average maximum probable loss is about $99 

million. As a result, in the absence of CSLAA indemnification, insurers 

could still provide some of the coverage currently available through the 

government under CSLAA. 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 are a number of reasons why private sector insurers are 

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 is 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 is relatively small.

• Second, according to these same officials, insurers are 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 

Changes to Market 

Capacity
 

Page 16 GAO-12-899 Commercial Space Launches

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 

would likely increase their estimates of the potential losses associated 

with all launches.

Under CSLAA, 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. 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.

Because launch failures and changing market conditions could change 

the amounts of coverage available in the private market, we identified 

other possible ways of managing catastrophic risk. While we have not 

conducted specific work to analyze the feasibility of alternative 

approaches for providing coverage currently available through CSLAA, 

FAA and others have looked at possible alternatives to CSLAA 

indemnification and we have examined different methods for addressing 

the risk of catastrophic losses associated with natural disasters and acts 

Alternatives for 

Addressing Space Launch 

Risk 
 

Page 17 GAO-12-899 Commercial Space Launches

of terrorism.19 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 selfinsurance or risk pools.20 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.21

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.

 

19See 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 Natural Disasters: Public Policy Options for Changing the Federal Role in 

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

20See 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.

21See 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 18 GAO-12-899 Commercial Space Launches

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

to implement.

The planned increase in manned commercial launches and reentries 

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 and reentries.

22

 

22NASA-contracted launches for NASA’s science missions are not currently covered by 

CSLAA; 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 CSLAA, and will be covered by CSLAA 

indemnification. 

NASA 

expects to procure from private launch companies 2 manned launches 

per year to the ISS from 2017 to 2020. In addition, a space tourism 

industry may also increase the number of launches and reentries covered 

by federal indemnification, but the timing of these launches and reentries 

Forecasted Increase 

in Manned Launches 

and Reentries Could 

Increase Potential 

Federal Government 

Costs; Current 

Coverage Has a Gap

Issues and Implications for 

Commercial Manned 

Launches and Reentries
 

Page 19 GAO-12-899 Commercial Space Launches

is uncertain. Virgin Galactic plans to conduct suborbital, manned 

launches and reentries. Virgin Galactic forecasts launches starting in 

2014 and, according to the company, 500 individuals have made deposits 

for the $200,000 fare. However, Virgin Galactic has not yet applied to 

FAA for a launch license and its planned schedule for flights has 

experienced delays in the past.

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 

needed by launch companies, which could raise insurance costs, 

including those for third party liability.23

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 new launch vehicles, such as SpaceX’s Falcon 9, which could 

also be used for manned missions. As of May 2012, Atlas V has had over 

two dozen launches with a 100 percent launch success rate; Falcon 9 has 

had 3 successful launches and 2 successful reentries. 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. 

 

23Launch providers obtain insurance in addition to that for third party liability, including 

coverage of assets, such as the launch vehicle.
 

Page 20 GAO-12-899 Commercial Space Launches

Third, having 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. CSLAA 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 if an accident 

occurs the party agrees not to seek claims against the federal 

government, which would have licensed the launch. CSLAA also requires 

cross waivers among involved parties in a launch except for spaceflight 

passengers. Two key issues dealing with cross waivers include the heirs 

of spaceflight passengers and crew and limits on liability for involved 

parties.

• The heirs of spaceflight passengers and crew, which are considered 

third parties to a launch and part of the general public as they are not 

involved in 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 heirs 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 highincome individuals, which could result in large insurance claims by 

heirs 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 the 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 currently have their 
 

Page 21 GAO-12-899 Commercial Space Launches

own space liability and indemnity laws limiting liability.24 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 an FAA task force report.25

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 

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 and reentries 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 is 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 FAA-licensed space 

activities. NASA’s commercial manned launches to the ISS 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 CSLAA 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, Virgin Galactic operations will only have 

suborbital launches and reentries and no on-orbit activities that require 

regulation. Therefore, according to officials from two launch companies, 

they do not believe that on-orbit activities need to be regulated by FAA or 

that federal indemnification coverage should be provided. However, one 

 

24Those states are Colorado, Florida, New Mexico, Texas, and Virginia. 

25FAA, FAA’s Response to NASA on the Insurance Task for Commercial Crew

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

Gap in Federal 

Indemnification 
 

Page 22 GAO-12-899 Commercial Space Launches

insurer noted that other proposed manned launches—such as an on-orbit 

“hotel” that is in development—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 U.S. agency that coordinates regulatory 

authority over on-orbit activities. If such authority were granted to one 

agency, then that agency may need to establish memorandums of 

understanding with other agencies involved in on-orbit activities.

FAA may seek statutory authority over on-orbit activities, according to 

senior agency officials. They further explained that they are not seeking 

on-orbit authority for satellite or spectrum usage. An insurer told us that 

having FAA in charge from launch to reentry 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 on-orbit activities then the potential costs to 

the government may increase as its exposure to risk increases.

The actual effects that eliminating CSLAA 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 CSLAA 

indemnification are unknown, several launch companies and customers 

Effects Unknown 

from Ending 

Indemnification, but 

Could Decrease U.S. 

Competitiveness 
 

Page 23 GAO-12-899 Commercial Space Launches

with whom we spoke said that in the absence of CSLAA 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 can vary 

dramatically across countries. For example, 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 is developing a 

vehicle for a similar launch for which it intends 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 it considers 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 CSLAA 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.
 

Page 24 GAO-12-899 Commercial Space Launches

According to launch companies and customers we spoke with, ending 

CSLAA 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 CSLAA indemnification program. 

Several launch customers with whom we spoke said that without CSLAA 

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 CSLAA 

indemnification could also have other negative effects. For example, 

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

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 

generally declined since 2008, commercial space is a dynamic industry 

with newly developing space vehicles and missions. With the termination 

of the shuttle program, NASA plans to procure cargo delivery to the ISS 

from private launch companies in 2012 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 CSLAA. 

As the industry changes and grows, periodically assessing federal liability 

indemnification policy to ensure that it protects both launch companies 

and the federal government will be important. This assessment would be 

Conclusions 
 

Page 25 GAO-12-899 Commercial Space Launches

affected by the amount of coverage the insurance industry is willing to 

provide for space launches. This amount depends on a number of factors 

including the number of launches and reentries and insurers’ ability to 

evaluate the underlying risks. To the extent private insurance capacity 

might increase, it could reduce the need for indemnification under 

CSLAA. 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 financial risks associated with space launches, while beyond the 

scope of this work, would also be an important part of any periodic 

assessment of CSLAA indemnification.

Several factors raise questions about FAA’s methodology for determining 

the maximum probable loss for a commercial space launch or reentry, 

which determines the amount of insurance coverage launch companies 

must buy and the amount above which government indemnification 

begins. Although FAA believes its approach is conservative, we believe 

that the maximum probable loss methodology needs to be updated. For 

example, FAA uses a dollar amount for estimating space launch losses 

from casualties and fatalities that the insurance industry says is outdated. 

Moreover, FAA has not had outside experts and risk modelers review its 

methodology. In addition, FAA uses this estimate of losses from 

casualties and fatalities as the basis for estimating potential property 

damage, an approach that could underestimate property losses. 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 launch companies. However, the importance of a sound calculation 

suggests that a review of the current methodology would be a worthwhile 

effort. An inaccurate maximum probable loss value could increase the 

cost to launch companies by requiring them to purchase more coverage 

than is necessary, or result in greater federal government exposure to 

expenditures.

To better ensure the accuracy of FAA’s determination of the amount of 

insurance coverage required for an FAA commercial space launch 

license, we recommend that the Secretary of Transportation direct the 

Associate Administrator for Commercial Space Transportation to review 

and periodically reassess FAA’s maximum probable loss methodology—

including assessing the reasonableness of the assumptions used. For 

these reviews, the Associate Administrator should consider using external 

Recommendation for 

Executive Action
 

Page 26 GAO-12-899 Commercial Space Launches

experts such as risk modelers, document the outcomes, and adjust the 

methodology, as appropriate, considering the costs.

We provided a draft of this report to the Department of Transportation and 

NASA for their review and comment. The Department of Transportation

provided technical clarifications, which we incorporated as appropriate. 

NASA had no comments.

We are sending copies of this report to interested congressional

committees, the Secretary of the Department of Transportation, and the

Administrator of the National Aeronautics and Space Administration. In 

addition, this report will be available at no charge on GAO’s Web site at 

http://www.gao.gov.

If you or your staff have any questions or would like to discuss this work, 

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 report. 

Individuals making key contributions to this report are listed in appendix II.

Alicia Puente Cackley

Director, Financial Markets and Community Investment

Gerald L. Dillingham, Ph.D.

Director, Physical Infrastructure Issues

Agency Comments
Appendix I: Objectives, Scope, and 

Methodology

Page 27 GAO-12-899 Commercial Space Launches

Our objective was to assess the Commercial Space Launch Act 

Amendments of 1988 (CSLAA) indemnification policy. To accomplish this, 

we addressed the following: (1) how the current U.S. commercial space 

launch indemnification policy compares to other countries’ policies; (2) the 

federal government’s potential costs under CSLAA; (3) the extent to 

which the insurance market is able and willing to provide third party 

liability insurance at levels currently provided by CSLAA; (4) the 

implications of commercial manned launches for the current federal 

indemnification policy, including the gaps, if any, that exist in that policy 

and the potential financial risks those gaps pose; and (5) what is known 

about the direct and indirect effects that ending indemnification would 

have on the competitiveness of U.S. commercial launch companies.

To determine how the current U.S. commercial space launch 

indemnification policy compares to policies in other countries, we 

conducted a literature review and selected four countries for 

comparison—China, France, India, and Russia—because they are the 

only countries other than the United States that have conducted 

commercial space launches in the last 5 years. Our source for the 

amounts of government indemnification provided by these countries is a 

2006 Aerospace Corporation report and a 2002 Federal Aviation 

Administration (FAA) report.1

To determine the federal government’s potential costs under CSLAA, we 

reviewed CSLAA, our past work on the budget treatment of insurance 

programs, and FAA’s maximum probable loss calculation. We also 

interviewed FAA officials and experts in risk modeling. To determine the 

extent to which the insurance market is able and willing to provide third 

party liability insurance at levels currently provided by CSLAA, we 

reviewed CSLAA to determine the amount of coverage the act provides 

commercial launch companies; reviewed relevant industry reports; and 

interviewed officials from FAA, insurance companies, and brokerage 

To the extent possible, we verified 

information from the literature review through discussions with officials 

from FAA, insurance companies, launch companies, and experts. We did 

not find sufficiently reliable information about India to report on its 

government indemnification.

 

1

The Aerospace Corporation, Study of the Liability Risk-Sharing Regime in the United 

States for Commercial Space Transportation (El Segundo, Calif.: August 2006) and 

Federal Aviation Administration, Liability Risk-Sharing Regime for U.S. Commercial Space 

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

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 28 GAO-12-899 Commercial Space Launches

companies. We also interviewed launch company officials to determine 

the additional coverage they might seek absent CSLAA indemnification. 

To determine a range of paid claims, we reviewed data from the National 

Aeronautics and Space Administration (NASA) on third party claims that 

have been paid as the result of the Space Shuttle Columbia accident and 

from an insurance official on third party claims paid as a result of a U.S. 

Air Force launch accident. Based on our discussions with NASA officials 

and an insurance broker involved in the U.S. Air Force claims, we found 

the data sufficiently reliable for our purposes.

To determine issues and implications of commercial manned launches for 

the current federal indemnification policy, including the gaps, if any, that 

exist in that policy and the potential financial risks those gaps pose, we 

interviewed officials from FAA, NASA, insurance companies, brokerage 

companies, and launch companies; and experts. To determine what is 

known about the effects of ending indemnification on the competitiveness 

of U.S. commercial launch companies, we conducted interviews with 

officials from launch companies, launch customers, and industry 

associations, and experts. We also obtained information from FAA on 

launches and revenues from 2002 through 2011. As the information was 

used for background, we did not assess the reliability of the data. 

We selected launch companies, insurance companies, brokerage 

companies, and launch customers for interviews that had conducted or 

participated in commercial launches in the past 5 years. In addition, we 

selected launch companies that are competing to conduct commercial 

launches as part of NASA’s Commercial Crew Development program or 

plan to conduct launches and reentries for space tourism. We also 

selected launch customers to include U.S. companies and foreign 

companies and those that had used both U.S. and foreign launch 

companies. We selected experts to interview to provide a variety of 

expertise, including space liability, risk modeling, and space law issues. 

Table 1 lists the organizations and agencies whose officials we 

interviewed as well as the experts we interviewed.
Appendix I: Objectives, Scope, and 

Methodology

Page 29 GAO-12-899 Commercial Space Launches

Table 1: Organizations, Agencies, and Experts Interviewed

Category Organization, agency, or individual

Brokerage company AON

Marsh USA

Willis Inspace

Insurance company Chartis Europe Limited a

Global Aerospace

XL Insurance

Launch company The Boeing Company

Orbital Sciences Corporation

Sierra Nevada Corporation Space Systems

Space Exploration Technologies Corp (SpaceX) 

Launch customer Digital Globe a

GeoEye

Risk modeling company AIR Worldwide

Risk Management Solutions

Industry association The American Academy of Actuaries

Aerospace Industries Association

Satellite Industry Association

b

Federal agency FAA 

NASA 

Expert Henry R. Hertzfeld, Research Professor, Elliott School of 

International Affairs, Space Policy Institute and Adjunct 

Professor of Law, The George Washington University

Howard Kunreuther, James G. Dinan Professor of Decision 

Sciences & Public Policy, Co-Director Risk Management and 

Decision Processes Center, Wharton School, University of 

Pennsylvania

Rosanna Sattler, Partner, Posternak, Blankstein, and Lund 

LLP 

Source: GAO.

a

An additional insurance company and launch customer were interviewed but did not wish to be 

identified.

b

We conducted this performance audit from November 2011 to July 2012 

in accordance with generally accepted government auditing standards. 

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.

Aerospace Industries Association convened a panel that included the launch companies Lockheed 

Martin, Virgin Galactic, and ATK.
Appendix II: GAO Contacts and Staff 

Acknowledgments

Page 30 GAO-12-899 Commercial Space Launches

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

Gerald L. Dillingham, Ph.D. at (202) 512-2834 or dillinghamg@gao.gov

In addition to the contacts named above, Teresa Spisak and Patrick Ward 

(Assistant Directors), Maureen Luna-Long, James Geibel, Carol Henn, 

David Hooper, Shelby Oakley, Susan Offutt, Amy Rosewarne, Steve 

Ruszczyk, Melvin Thomas, and Frank Todisco made key contributions to 

this report.

Appendix II: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts

Staff 

Acknowledgments 

(540247)
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