The federal commercial launch indemnification provisions protect commercial launch operators by indemnifying for losses exceeding the insurance the operators are required to carry. The regime is extremely important to the commercial launch industry because launchers would face difficulty getting the levels of private insurance they would need to cover all losses without the government’s indemnification. Launchers are required to carry insurance up to a “maximum probable loss” calculated by the FAA’s Office of Commercial Space Transportation, and under the indemnification regime, the government will cover anything above the MPL up to about $2.8 billion. However, the industry is facing the potential loss of this regime, and it’s not the first time they have had to worry.
Congress is quickly approaching the deadline to extend existing third-party commercial launch indemnification. The same situation arose this time last year as well. The House waited until January 2, 2013, to consent to the Senate-amended version of a bill that provides an extension to commercial launch indemnification. The bill, originally introduced by Bill Nelson (D-FL) and Kay Bailey Hutchison (R-TX), is entitled the Space Exploration Sustainability Act, and originally extended the provisions by two-years. However, the House approved bill only provided a one-year extension to commercial launch indemnification. Immediately after the bill was passed, the House adjourned until 11 a.m. the next Thursday, just before the 113th Congress was sworn in, making it one of the final acts by the House in the 112th Congress.
Because the commercial launch indemnification regime was only renewed for a year, the commercial launch industry is again wondering whether Congress will extend the regime. Congress has taken barely any action for another extension. The indemnification regime is “crucial” and “important” to foster the U.S. space industry and keep it competitive with other nations, according to Chris Kunstadter, Senior Vice President Aerospace Insurance at XL Group. Kunstadter described the last minute and short term extensions as frustrating to the industry, but that he does expect an extension.
If Congress doesn’t renew commercial launch indemnification, it is expected that insurance rates will go up, clearly a negative for the industry cost-wise. It would further discourage companies interested in entering the commercial launch market from doing so.
Failure to renew the provision would negatively impact the commercial launch industry. It would be a mistake for Congress to let the regime sunset, especially if it is because they haven’t spent any time considering it in the first place. The last minute, short-term extension of last year likely had a negative impact on the industry as well. Companies like SpaceX that have the capital to continue operations may not have felt the fear of not knowing whether it would be extended to a great degree. However, smaller companies, or those who are only just starting or haven’t even broken into the market were surely affected. They likely had to stall their operations for fear that the indemnification regime might not be renewed, in which case they couldn’t afford to enter the market. And Congress is doing the same thing to these efforts again. In order for the U.S. space industry to continue to be competitive – to continue to grow – the commercial indemnification regime is a necessity. Otherwise, the market will likely come to consist of only a few, or maybe even less than a few, market players. This reduces competition and reduces the drive for innovation. Especially in this era where space exploration isn’t on the top of the government’s agenda, private companies are a necessity in order to keep the scientific advancement in that field moving forward. If Congress doesn’t renew the indemnification regime, it will certainly be an instance of the law holding back fruitful scientific advancement.