Alden Orrery – Orrery Update July 2022
Government publishes response to orbital liability and insurance policy call for evidence
The UK Government has committed to review key liability and insurance concerns for the space industry. It has published a response to its Call for Evidence on orbital liability and insurance policy. This Orrery Update describes the Government’s proposals and the possible impact on the UK space industry.
The UK Government has published a Response to its Call for Evidence to Inform Orbital Liability and Insurance Policy (Response).
The Response, published 23 June 2022, sets out potential future developments for UK space policy in relation to the in-orbit operator liability limit and insurance alternatives.
The Call for Evidence, of 22 October 2021, recognised that the current UK in-orbit liability policy and insurance requirements have disincentivised satellite operators from setting up in the UK and requested information from industry on options to mitigate liability and insurance burdens on operators.
Response from the Government
In the Response, the Government considered the following industry proposals.
- Need for a liability limit in section 12(2) of the Space Industry Act 2018 (SIA)
A key focus in the industry’s proposals was amending section 12(2) of the SIA to mandate a limit of liability in statute, rather than have unlimited liability for orbital activities.
In its Response, the Government affirmed its policy that all licences should limit an operator’s liability, and that no operator should face unlimited liability. However, the Government has acknowledged that an amendment to section 12(2) of the SIA would provide legislative certainty on this issue and states that it is currently exploring options for making this change.
- Variable liability limit approach
Industry responses also signalled a preference for a variable liability limit approach. This approach would seek to make liability proportionate to mission risks, encourage better risk mitigation measures amongst operators and reduce insurance costs.
In the Response, the Government has confirmed that it is considering proposals for a variable liability limit approach. Liability under this new model would depend on well-defined, transparent and accessible criteria, and bands of liability will range from a minimum value of zero to a maximum value of £50 million.
The Government has also expressed the view that liability caps and the tiered liability approach will bolster UK competitiveness and thought leadership while still ensuring the safety of orbital space activities. This approach will also feed into the Government’s ambitions regarding sustainability, with key sustainability criteria informing the tiered liability approach.
Some initial safety and sustainability criteria suggested in the Response for determining which variable limit would apply to a particular mission include:
- mission parameters to reduce the probability and severity of a collision;
- maximising the trackability and manoeuvrability of satellites;
- minimising the potential for debris propagation; and
- minimising long-term impacts on orbital sustainability.
A potential scoring methodology for determining an operator’s liability band has also been outlined in the Response, with a higher liability tier pertaining to large satellite constellations and objects with a higher probability of collision. A lower liability tier would apply to operators who adopt a significant number of measures over and above international guidelines, including the Long-Term Sustainability Guidelines as developed by the United Nations Committee on the Peaceful Uses of Outer Space.
The Government has also recognised the need for consistent insurance requirements that are not annually amended. This will provide budgeting and administrative certainty to operators for their in-orbit operations.
- Alternative insurance models
The Call for Evidence also sought industry views on alternative insurance models. In the industry response, operators have overwhelmingly supported a sector-proposed mutual insurance model (originally proposed by the Satellite Finance Network) with little support given to other alternatives. This was not the case in the responses from insurers, who instead preferred a collective Government-agreed approach to insurance.
In the Response, the Government has signalled its intention to consult on three alternatives:
- a sector-led mutual approach;
- a collective insurance policy for the whole sector; and
- a Government space bond.
As part of the assessment of these insurance options, the Government will consider how these insurance models impact safety and sustainability.
- Currency change
The Government intends to implement the change requested by the industry to set liability limits in Sterling rather than Euros. Where insurance is purchased by an operator in non-Sterling currency, the value of the insurance will be assessed against the new Sterling liability limit.
Further opportunities for industry participation
Although the Response to the Call for Evidence does not represent a formal proposal by the Government, the considerations outline the Government’s current thinking regarding in-orbit liability and insurance. The next steps following this Response are to:
- continue the work of the safety and sustainability approach working group to develop the methodology; and
- develop a set of proposals in light of the initial considerations in the Response for consultation in late 2022 or early 2023.
The Response is, in our view, a welcome step toward establishing an in-orbit liability and insurance regime which incentivises operators to set up and grow in the UK while complying with sustainability objectives.
We would ask the Government to implement the proposals outlined in the Response as quickly as possible to ensure an attractive regulatory framework for industry.