A stated goal  of the act was to provide a competitive environment for the U.S.  commercial space launch industry. The amount of insurance coverage that FAA requires launch companies  to purchase—the MPL value—is intended to reflect the greatest dollar  amount of loss to third parties and the federal government for bodily injury  and property damage that can be reasonably expected to result from a  launch or reentry accident. Property damage. GAO Previously Reviewed FAA’s MPL Methodology

We have previously reviewed FAA’s MPL methodology in 2012 and 2017. In 2017 we examined  the extent to which FAA had revised its MPL methodology since our 2012  report to address previously cited weaknesses and the potential effect of  any changes to that methodology on financial liabilities for the federal  government. FAA Did Not Fully Address the CSLCA’s Three Mandated Requirements

CSLCA required FAA to evaluate its MPL methodology incorporating  three requirements, but the agency’s report did not fully address these  requirements. However, agency officials  told us that they did not re-evaluate the probability thresholds—which  are used to divide the risk of loss between launch companies and the  federal government—as part of evaluating its MPL methodology when  implementing the risk profile method due to resource constraints. Second, the act required FAA to consider the cost impact of  implementing an updated MPL methodology, but the agency did not  evaluate the impact of implementing its revised methodology on the  direct costs to launch companies (insurance premiums) and to the  federal government (indemnification liability). Third, the act required FAA to consult with the commercial space  sector and insurance providers in evaluating its MPL, but they did not  consult such parties in response to the act. FAA Has Not Fully Evaluated the Balance between Government Liability Exposure and Industry Insurance Costs

In its report, FAA states that implementing an updated MPL methodology  in April 2016—the risk profile method—helps ensure that the federal  government is not exposed to greater liability costs than intended and that  launch companies are not required to purchase more insurance coverage  than necessary, as required under CSLCA. Nevertheless, without evaluating the appropriateness of the  probability threshold as part of the mandated evaluation of the MPL  methodology, FAA cannot ensure that the federal government is not  exposed to greater liability costs than intended or that launch companies  are not required to purchase more insurance coverage than necessary. For example, FAA discussed indirect data burden costs on  launch company applicants and FAA analysts associated with the  agency’s risk profile method implementation. FAA Has Made Improvements to Its MPL Methodology but Has Not Updated the Cost-of- Casualty Amount

FAA has taken steps designed to improve two of three elements of its  MPL methodology, including revising its methodology for estimating the  number of potential casualties for a given launch and changing the factor  it uses to derive estimated property damage from estimated casualties. However, the agency has not updated the third element, the amount it  uses for the cost of an individual casualty, leaving a previously identified  weakness unaddressed. However, in our March 2017 report we also determined that FAA had not  yet addressed weaknesses in the cost-of-casualty amount we had  previously identified; despite the conclusion by a contractor it had hired to  study the cost-of-casualty that it was too low. As a result,  our recommendation remains open. Because of this potential exposure, we maintain that addressing this  weakness is a priority. FAA officials said that they have implemented two  tools for estimating the number of potential casualties, and that each tool  requires a different level of resources and is more appropriate for different  launch scenarios. Without such guidance, FAA could face challenges in ensuring that it is  using the most appropriate method to calculate an MPL for a given launch  and is making the most efficient use of its resources. Further, agency  officials said they have begun to develop internal guidance on how to  determine which methodological tools should be used for a given launch,  but are not sure when this process will be completed. (Recommendation 2)
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)
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. In its comments, reproduced in appendix I, the  Department of Transportation concurred with our recommendations. The  Department of Transportation also provided technical comments, which  we incorporated as appropriate.
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.

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.

What GAO Recommends

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.