Commercial Space Launch Insurance: FAA Needs to Fully Address Mandated Requirements
Highlights
What GAO Found
The Federal Aviation Administration's (FAA) report evaluating its maximum probable loss (MPL) methodology did not fully address the evaluation and consultation requirements specified by the U.S. Commercial Space Launch Competitiveness Act (CSLCA).
Balance of Risk. CSLCA required FAA to include ensuring that the federal government is not exposed to greater indemnification costs and that launch companies are not required to purchase more insurance coverage than necessary as a result of FAA's MPL methodology. FAA said that it ensured this balance by improving its methodology, but it did not reevaluate its probability thresholds after revising its methodology. These thresholds are used to divide the risk of loss between launch companies and the government.
Impact on Costs. The act required FAA to consider the costs to both the industry and the federal government of implementing an updated methodology. FAA's report discussed the impact on indirect costs, such as data collection, but did not discuss direct costs: insurance premiums for launch companies and indemnification liability for the federal government.
Consultation. The act also required FAA to consult with the commercial space sector and insurance providers in evaluating its MPL methodology in accordance with the preceding requirements. While the agency consulted with some stakeholders, these consultations were limited in scope.
FAA officials said they have not been able to take the actions needed to fully satisfy the mandated elements because of issues such as resource limitations and the lack of available data. However, by not resolving these issues, FAA lacks assurance that launch companies are not purchasing more insurance than needed or that the federal government is not being exposed to greater indemnification costs than expected.
FAA has addressed two of three previously identified weaknesses in its MPL methodology but has not yet dealt with the remaining weakness. Specifically, the agency has revised its methodology for estimating the number of potential casualties for a launch and changed the factor it uses to derive estimated property damage from estimated casualties. However, FAA has not updated the amount used for the cost of an individual casualty. GAO recommended in a March 2017 report (GAO-17-366) that FAA update this amount. Not doing so could understate the amount of insurance launch companies are required to purchase, exposing the federal government to excess risk.
GAO also determined that while FAA has two tools and methods it can use in making its MPL estimates, it does not have guidance on determining which are most appropriate for a given launch scenario. For example, one tool is more comprehensive but also labor intensive to use, while the other is inappropriate for certain launch scenarios and could result in misleading MPL amounts. Officials said they have begun to create such guidance but do not have an estimated completion date. Without such guidance, FAA cannot ensure that the most appropriate MPL methodology is used for each launch.
Why GAO Did This Study
The federal government shares liability risks with the commercial space launch industry for accidents that result in damages to third parties or federal property. This arrangement requires space launch companies to have a specific amount of insurance to cover these damages. The government is potentially liable for damages above that amount, up to a cap GAO estimated to be $3.1 billion in 2017, subject to appropriations in advance.
CSLCA, enacted in 2015, directed the Department of Transportation, of which FAA is a part, to evaluate its MPL methodology and, if necessary, develop a plan to update that methodology. The act also included a provision requiring GAO to assess FAA's evaluation and any actions needed to update the methodology.
This report discusses the extent to which (1) FAA's evaluation report addresses the requirements in CSLCA and (2) FAA has addressed previously identified weaknesses in the MPL methodology. GAO reviewed documents and interviewed FAA on its loss methodology evaluation and actions to address weaknesses.
Recommendations
FAA should fully address mandated requirements in evaluating its MPL—probability thresholds, direct costs, and stakeholder consultations— and establish an estimated completion date for developing guidance on tools and methods to use for specific launch scenarios. The Department of Transportation concurred with the recommendations, and provided technical comments.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Federal Aviation Administration | The FAA Administrator should fulfill the CSLCA mandate to include ensuring a balance of risk between the federal government and launch companies as part of FAA's MPL methodology evaluation by reexamining the current probability thresholds. (Recommendation 1) |
In January 2021, Department of Transportation (DOT) officials stated that FAA had not yet finished reexamining the current maximum probable loss (MPL) probability thresholds. The officials also stated that FAA remains focused on streamlining the launch and reentry license regulations (SLR2) rulemaking and subsequent 27 Advisory Circulars. According to the officials, they had re-chartered COMSTAC, and expect to develop a priority list of all commercial space regulations by December 2021, which will include Part 440, Financial Responsibility. Subsequently, in July 2021, FAA officials told us that FAA will address these recommendations at the time it updates Part 440, which is postponed while the agency remains focused on activities related to its streamlined launch and reentry licensing regulations. In March 2023, FAA formed a Financial Responsibility Aerospace Rulemaking Committee to solicit information about updating the overall financial responsibility regime. They expect a report from the committee in early 2024, with rulemaking beginning shortly thereafter.
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| Federal Aviation Administration | The FAA Administrator should fulfill the CSLCA mandate to analyze the cost impact of implementing its revised MPL methodology by evaluating the impact on the direct costs of launch companies and the federal government. (Recommendation 2) |
In March 2022, Department of Transportation (DOT) officials stated that FAA is convening an Aerospace Rulemaking Committee (SpARC), projected to start by June 2022, and will use this committee to gather industry input on potential changes to Part 440 of FAA's regulations. The officials stated that they will determine whether any cost impact research is necessary once they have received industry input from the SpARC. FAA officials told us that, as with the other recommendations, they will finalize addressing this recommendation at the time it updates Part 440, which is postponed while the agency remains focuses on activities related to its streamlined launch and reentry licensing regulations. In March of 2023, FAA formed a Financial Responsibility Aerospace Rulemaking Committee to solicit information about updating the overall financial responsibility regime. They expect a report from the committee in early 2024, with rulemaking beginning shortly thereafter.
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| Federal Aviation Administration | The FAA Administrator should fulfill the CSLCA mandate to evaluate its MPL methodology in consultation with the commercial space sector and insurance providers by consulting with those entities on the cost impact of its revised MPL methodology, including an updated cost-of-casualty amount, on the launch industry and the federal government. (Recommendation 3) |
In January 2021, Department of Transportation (DOT) officials stated that FAA had not yet finished reexamining the current maximum probable loss (MPL) probability thresholds. The officials also stated that FAA has worked with COMSTAC to determine that the cost-of-casualty amount should be updated to $5 million. According to the officials, this effort will continue through January 2022. Subsequently, in July 2021, FAA officials told us that FAA will address these recommendations at the time it updates Part 440, which is postponed while the agency remains focused on activities related to its streamlined launch and reentry licensing regulations. In March of 2023, FAA formed a Financial Responsibility Aerospace Rulemaking Committee. The objective of the committe is to solicit information, concerns, and opinions about updating the financial responsibility regime for licensed launch and reentry. MPL methodology has been briefed and discussed in the committee meetings, along with the cost of a casualty. These topics will be included in the recommendation report, which is expected in early 2024.
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| Federal Aviation Administration | The FAA Administrator should establish an estimated completion date for developing and implementing a plan to establish guidance on the most appropriate MPL methodologies and tools to use for each launch. (Recommendation 4) |
In March 2022, Department of Transportation (DOT) officials told us that FAA is convening an Aerospace Rulemaking Committee (SpARC), projected to start by June 2022, and will use this committee to gather industry input on potential changes to Part 440 of FAA's regulations. The results of this committee's work will be used to develop any plans for revising FAA maximum probable loss (MPL) methodologies and tools, as well as associated completion dates. The officials also stated that they have gathered some data on the MPL methodologies and that they are starting to look at methodologies and tools for classes of launch vehicles. FAA stated that they had not yet finished reexamining the current MPL thresholds. As of August 2022, these efforts were underway but not complete. In March of 2023, FAA formed a Financial Responsibility Aerospace Rulemaking Commitee in March of 2023. The MPL methodology has been briefed and discussed in the committee meetings, and the FAA may modify the methodology based on the committee's recommendations. The committee is expected to issue a report in early 2024.
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