Commercial Space Insurance Loss Estimates “Unrealistic”: US Government

Commercial Space Insurance Loss Estimates “Unrealistic”: US Government

Estimates of the probable maximum loss from private market space launches are often wrong and put U.S.taxpayers on the hook for billions in excess risk, according to new report from the U.S. Government Accountability Office (GAO).

“As a result of this unaddressed weakness in the cost-of- casualty amount, [the government] may not be requiring launch companies to hold enough insurance, which, as a result, may expose the government to more risk than intended,” the report published last week states.

At issue are private market insurance policies required by the U.S. government for companies that have gained approval to launch satellites and other vehicle into orbit or return payloads to earth. The policies — which are part of a “risk sharing” arrangement developed by federal authorities in 1988 to encourage commercial spaceflight — protect against claims up to an amount determined by the Federal Aviation Administration (FAA).

For claims that exceed that threshold, the federal government pays damages up to a “cap amount” calculated each year. The GAO estimates the cap on the federal government’s assumption of risk in 2017 would be about $3.1 billion.

Currently, there are are about 50 insured launches each year paying about $750 million in premiums, according to published reports..

The GAO discovered a number of issues in the FAA’s calculation of losses that both overestimate and underestimate risk. Those issue include:

  • Estimates of the number of casualties (serious injuries and deaths) that could result from a launch accident have likely been too high, and have been based on an unrealistic scenario;
  • Estimates of losses due to property damage may be too high in some cases, and too low in others;
  • Estimate of the average cost of a casualty has been fixed at $3 million since 1988 and is based on outdated information and is likely too low.

In addition, new loss modeling software implement last year by the FAA caused the government to reduce its estimated losses due to property damage and casualties in failed space launches and have “tended to reduce insurance requirements.” However, the government has not reviewed the software’s reliability despite discovering “significant limitations.”

“By leaving this weakness unaddressed, FAA’s insurance requirements may not account for damages that can be reasonably expected, and may expose the government to more liability risk than intended under the risk-sharing arrangement,” the report states.

The GAO recommends that that FAA Administrator “prioritize” a plan to address the weakness in the cost-of-casualty amount and offer Congress a time ime frames fixing the issue.

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