Could insurance coverage hobble commercial space flights?

Federal Aviation Administration's space launch risk sharing “indemnification” program ends in 2012

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Should the government continue to share the monetary risk of a catastrophic spacecraft accident even as the United States depends ever-more on commercial space technology?

The question is one currently up for debate as the program that currently insures space launches, the Federal Aviation Administration's "indemnification" risk-sharing authority, which can provide a maximum of $2.7 billion of insurance per launch, expires at the end of the year.  According to the Government Accountability Office 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 about $2.7 billion.

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It should be noted that since the program's inception in the Commercial Space Launch Act Amendments of 1988, over 200 commercial licensed launches have been flown without any federal money being paid out in damages.

According to a GAO report on the indemnification" program presented this week: "The actual effects on competition of eliminating Commercial Space Launch Act Amendments indemnification are currently unknown. However, launch companies and customers GAO contacted believe that ending federal indemnification could lead to higher launch prices for US launch companies, making them less competitive than foreign launch companies. Although the cost of third party liability insurance coverage for launch companies has been about 1 percent 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 launch company over a US company is also not clear."

The GAO said the United States provides less indemnification for third party losses than China, France, and Russia, according to studies. For example, 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 as of May 2012) and the Russian government provides indemnification over $80 million for the smaller Start launch vehicles and $300 million for the larger Soyuz and Proton vehicles.

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"Not withstanding the high reliability of today's generation of launch vehicles, many industry experts advocate extending the indemnification program in part because of the inherent riskiness of launching payloads to orbit," said the Space and Aeronautics Subcommittee Chairman Steven Palazzo (R-MS). "Catastrophic launch failures are deemed to be a low-probability event, but understandably one that could result in extremely high damages."  The committee held a hearing Wednesday on the indemnification program.

Speaking at that hearing, DigitalGlobe, which owns and operates one of the largest constellation of commercial high resolution satellites, vice president J. Alison Alfers told the subcommittee: "As a consumer of commercial launch services, we believe the government sponsored launch indemnification program is essential to maintaining a domestic launch capability. In our view, the risk mitigation benefit provided by the program allows the launch providers to at least partially fix their exposure for damages associated with providing launch services and this translates directly into price competitiveness as well as the overall cost-benefit assessment that all providers do when deciding whether to enter or stay in the market. In an environment of totally uncapped risk, we question whether adequate financial incentive would remain for current providers to stay in the market and new providers to enter, and we are certain that an uncapped risk environment would result in significantly higher and likely prohibitive launch costs."

The GAO noted that while the number of US commercial space launches has fallen in recent years, it is reasonable to expect an increase in the years ahead. NASA plans to begin procuring commercial cargo transportation services to the International Space Station in 2012 and intends to procure commercial manned launches to carry its astronauts to the ISS beginning in 2017.

In addition just last week Space Exploration Technologies-SpaceX-, successfully demonstrated the potential for commercial cargo resupply of the International Space Station.  And Orbital Sciences, plans to demonstrate the same transportation capability later this year. And in the coming years, suborbital spacecraft are anticipated to begin launching space tourists, others noted.

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