(updated June 2010)
It is commonly asserted that nuclear power stations are not covered by insurance, and that insurance companies don't want to know about them. This is incorrect, and the misconception was addressed as follows in 2006 by a broker who had been responsible for a nuclear insurance pool: "it is wrong [to believe] that insurers will not touch nuclear power stations. In fact, wherever they are available to private sector insurers, Western-designed nuclear installations are sought-after business because of their high engineering and risk management standards. This has been the case for fifty years." He elaborated: "My comment refers very much to the world scene and is not contentious. Apart from Three Mile Island, the claim experience has been very good. Chernobyl was not insured. Significantly, because Chernobyl was of a design that would not have been an acceptable risk at the time, notably the lack of a containment structure, the accident had no impact on premium rates for Western plants.
"The structure of insurance of nuclear installations is different from ordinary industrial risks. It involves international conventions, national legislation channeling liability to the operators, and pooling of insurance capacity in more than twenty countries. The national nuclear insurance pool approach was particularly developed in the UK in 1956 as a way of marshalling insurance capacity for the possibility of meltdown, etc. Other national pools that followed were modeled on the UK pool - now known as Nuclear Risk Insurers Limited, and based in London."
Ever since the first commercial nuclear power reactors were built, there has been concern about the possible effects of a severe nuclear accident, coupled with the question of who would be liable. This concern was based on the supposition that even with reactor designs licensable in the West, a cooling failure causing the core to melt would result in major consequences akin to those of the Chernobyl disaster. Experience over five decades has shown this fear to be exaggerated, and the local impact of a severe accident or terrorist attack is likely to be small - the Three Mile Island accident in 1979 being indicative.
Nuclear liability principles
International Framework
Before 1997, the international liability regime was embodied primarily in two instruments:- the IAEA's Vienna Convention* on Civil Liability for Nuclear Damage of 1963 (entered into force in 1977), and- the OECD's Paris Convention on Third Party Liability in the Field of Nuclear Energy of 1960 which entered into force in 1968 and was bolstered by the Brussels Supplementary Convention in 1963**.
* Parties to Vienna Convention are mainly outside of Western Europe, including: Argentina, Bulgaria, Czech Rep, Hungary, Lithuania, Mexico, Poland, Romania, Russia, Slovakia, Ukraine. See also http://www.iaea.org/Publications/Documents/Conventions/liability_status.pdf** The Paris convention includes all Western European countries except Ireland, Austria, Luxembourg and Switzerland. Parties to both Paris & Brussels are: Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Slovenia, Spain, Sweden, UK. Paris only: Greece, Portugal, Turkey. See also: http://www.nea.fr/html/law/paris-convention-ratification.htmlhttp://www.nea.fr/html/law/brussels-convention-ratification.html
These Conventions were linked by the Joint Protocol adopted in 1988 to bring together the geographical scope of the two*. They are based on the concept of civil law and share the following main principles:
* parties: http://www.iaea.org/Publications/Documents/Conventions/jointprot_status.pdf
** The Paris Convention set a maximum liability of 15 million Special Drawing Rights - SDR (about EUR 18 million), but this was increased under the Brussels Supplementary Convention up to a total of 300 million SDRs (about EUR 360 million), including contributions by the installation State up to SDR 175 million (EUR 210M) and other Parties to the Convention collectively on the basis of their installed nuclear capacity for the balance.
Following the Chernobyl accident in 1986, the IAEA initiated work on all aspects of nuclear liability with a view to improving the basic Conventions and establishing a comprehensive liability regime. In 1988, as a result of joint efforts by the IAEA and OECD/NEA, the Joint Protocol Relating to the Application of the Vienna Convention and the Paris Convention was adopted. This broadened the coverage of the two Conventions combining them into one expanded liability regime. It was also intended to obviate any possible conflicts of law in the case of international transport of nuclear material. It entered into force in 1992.
In 1997 governments took a significant step forward in improving the liability regime for nuclear damage when delegates from over 80 States adopted a Protocol to Amend the Vienna Convention. The amended IAEA Vienna Convention sets the possible limit of the operator's liability at not less than 300 million SDRs (about EUR 360 million) and entered into force in 2003 but with few members.
Also in 1997 IAEA parties adopted a Convention on Supplementary Compensation for Nuclear Damage (CSC). This defines additional amounts to be provided through contributions by States Parties collectively on the basis of installed nuclear capacity and a UN rate of assessment, basically at 300 SDRs per MW thermal (ie about EUR 360 million total). The CSC - not yet ratified - is an instrument to which all States may adhere regardless of whether they are parties to any existing nuclear liability conventions or have nuclear installations on their territories.
The Protocol amending the Vienna Convention - ratified in 2003 - broadens the definition of nuclear damage (now also addressing the concept of environmental damage and preventive measures), extends the geographical scope of the Convention, and extends the period during which claims may be brought for loss of life and personal injury. It also provides for jurisdiction of coastal states over actions incurring nuclear damage during transport.
In 2004, contracting parties to the OECD Paris (and Brussels) Conventions signed Amending Protocols which brought the Paris Convention more into line with the IAEA Conventions amended or adopted in 1997. The principal objective of the amendments was to provide more compensation to more people for a wider scope of nuclear damage. They also shifted more of the onus for insurance on to industry. Consequently new limits of liability were set as follows: Operators (insured) €700 million, Installation State (public funds) €500 million, Collective state contribution (Brussels) €300 million => total €1500 M. The definition of "nuclear damage" is broadened to include environmental damage and economic costs, and the scope of application is widened. These Protocols are expected to be ratified by the contracting parties once they have consulted with industry stakeholders and then drafted the necessary amending legislation. They are not yet in force, and the old limits still apply (c €210 million, €360 million).
Beyond such provision there is at least a tacit acceptance that the installation state will make available funds to cover anything in excess of these provisions, just as is the case with any major disaster - natural or other (the main ones have been chemical plants). This has long been accepted in all developed countries. In the event of government payout to meet immediate claims however, the operator's liability is in no way extinguished, and taxpayers would expect to recover much or all of the sums involved.
However, states with a majority of the world's 440 nuclear power reactors are not yet party to any international nuclear liability convention, relying on their own arrangements.
Beyond the international conventions, most countries with commercial nuclear programs also have their own legislative regimes for nuclear liability. These national regimes implement the conventions’ principles, and impose financial security requirements which vary from country to country. There are three categories of countries in this regard: those that are party to one or both of the international conventions and have their own legislation, those that are not parties to an international convention but have their own legislation (notably USA, Canada, Japan, S.Korea), and those that are not party to a convention and are without their own legislation (notably China).
US Framework
The USA takes a somewhat different approach, and having pioneered the concept is not party to any international nuclear liability convention. The Price Anderson Act - the world's first comprehensive nuclear liability law - has since 1957 been central to addressing the question of liability for nuclear accident. It now provides $10 billion in cover without cost to the public or government and without fault needing to be proven. It covers power reactors, research reactors, and all other nuclear facilities.
It was renewed for 20 years in mid 2005, with strong bipartisan support, and requires individual operators to be responsible for two layers of insurance cover. The first layer is where each nuclear site is required to purchase US$ 300 million liability cover which is provided by two private insurance pools. This is financial liability, not legal liability as in European liability conventions.
The second layer is jointly provided by all US reactor operators. It is funded through retrospective payments if required of up to $112 million per reactor per acident* collected in annual instalments of $17.5 million (and adjusted with inflation). Combined, the total provision comes to over $10 billion paid for by the utilities. (The Department of Energy also provides $10 billion for its nuclear activities.) Beyond this cover and irrespective of fault, Congress, as insurer of last resort, must decide how compensation is provided in the event of a major accident.
* plus up to 5% if required for legal costs.
More than $200 million has been paid by US insurance pools in claims and costs of litigation since the Price- Anderson Act came into effect, all of it by the insurance pools. Of this amount, some $71 million related to litigation following the 1979 accident at Three Mile Island.
The Nuclear Regulatory Commission (NRC) requires all licensees for nuclear power plants to show proof that they have the primary and secondary insurance coverage mandated by the Price-Anderson Act. Licensees obtain their primary insurance through American Nuclear Insurers. Licensees also sign an agreement with NRC to keep the insurance in effect. American Nuclear Insurers also has a contractual agreement with each of the licensees to collect the retrospective premiums if these payments become necessary. A certified copy of this agreement, which is called a bond for payment of retrospective premiums, is provided to NRC as proof of secondary insurance. It obligates the licensee to pay the retrospective premiums to American Nuclear Insurers if required.
American Nuclear Insurers is a pool comprised of investor-owned stock insurance companies. About half the pool's total liability capacity comes from foreign sources such as Lloyd's of London. The average annual premium for a single-unit reactor site is $400,000. The premium for a second or third reactor at the same site is discounted to reflect a sharing of limits.
The nuclear operators' mutual arrangement is Nuclear Electric Insurance Limited (NEIL) which is well funded (a $5 billion surplus) and cooperates closely with the American Nuclear Insurers pool. It was founded in 1980 and insures operators for any costs associated with property damage, decontamination and related nuclear risks.
The Price Anderson Act has been represented as a subsidy to the US nuclear industry. If considered thus, the value of the subsidy is the difference between the premium for full coverage and the premium for $10 billion in coverage. On the basis of data obtained from two studies - one conducted by the Nuclear Regulatory Commission (NRC) and the other by the Department of Energy (DOE) - the Congressional Budget Office (CBO) estimated that the subsidy probably amounts to less than 1 percent of the levelized cost for new nuclear capacity.
Other countries
In the UK, the Energy Act 1983 brought legislation into line with earlier revisions to the Paris/Brussels Conventions and set a new limit of liability for particular installations. In 1994 this limit was increased again to £140 million for each major installation, so that the operator is liable for claims up to this amount and must insure accordingly. The majority of this insurance is provided by a pool of UK insurers comprising 8 insurance companies and 16 Lloyds syndicates - - Nuclear Risk Insurers. Beyond £140 million, the current Paris/Brussels system applies, with government contribution to SDR 300 million (c €360 million). The government is planning legislation for 2010 which will require insurance above the £140 million level, and towards the EUR 700 million level specified under the 2004 Paris/Brussels Protocol (when it enters force), this to be provided by government at commercial rates.
In mainland Europe, individual countries have legislation in line with the international conventions and where set, cap levels vary. Germany has unlimited operator liability and requires €2.5 billion security which must be provided by the operator for each plant. This security is partly covered by insurance, to €256 million. France requires financial security of EUR 91 million per plant. Switzerland (which has signed but not yet ratified the international conventions) requires operators to insure to €600 million. It is proposed to increase this to €1.1 billion and ratify the Paris and Brussels conventions.
Finland has ratified the 2004 Joint Protocol relating to Paris and Vienna conventions and in anticipation of this coming into force it passed a 2005 Act which requires operators to take at least € 700 million insurance cover. Currently the level is only EUR 300 million. Also operator liability is to be unlimited beyond the € 1.5 billion provided under the Brussels Convention. "Nuclear damage" is as defined in revised Paris Convention, and includes that from terrorism.
Sweden has also ratified the 2004 Joint Protocol relating to Paris and Vienna conventions. The country's Nuclear Liability Act requires operators to be insured for at least SEK 3300 million (EUR 345 million), beyond which the state will cover to SEK 6 billion per incident. However, Sweden is reviewing how this relates to the EUR 700 million operator's liability under the Joint Protocol amending the Paris convention, and has announced that it will seek unlimited operator liability.
The Czech Republic is moving towards ratifying the amendment to the Vienna Convention and in 2009 increased the mandatory minimum insurance cover required for each reactor to CZK 8 billion (EUR 296 million).
In Europe there are two mutual insurance arrangements which supplement commercial insurance pool cover for operators of nuclear plants. The European Mutual Assurance for the Nuclear Industry (EMANI) was founded in 1978 and European Liability Insurance for the Nuclear Industry (ELINI) created in 2002. ELINI plans to make EUR 100 million available as third party cover, and its 28 members have contributed half that to late 2007 for a special capital fund. ELINI's members comprise most EU nuclear plant operators. EMANI's funds are also only about EUR500 million.
In Canada the Nuclear Liability and Compensation Act is also in line with the international conventions and establishes the licensee's absolute and exclusive liability for third party damage. Suppliers of goods and services are given an absolute discharge of liability. The limit of C$75 million per power plant set in 1976 as the insurance cover required for individual licensees was increased to $650 million in the Act's 2008 revision, though this has not yet passed. Cover is provided by a pool of insurers, and claimants need not establish fault on anyone's part, but must show injury. Beyond the cap level, any further funds would be provided by the government.
Japan is not party to any international liability convention but its law generally conforms to them. Two laws governing them are revised about every ten years: the Law on Compensation for Nuclear Damage and Law on Contract for Liability Insurance for Nuclear Damage. Plant operator liability is exclusive and absolute, and power plant operators must provide a financial security amount of 60 billion yen (US$ 600 million). From 2010 this doubles to 120 billion yen (US$ 1.2 billion). Beyond that, the government provides coverage, and liability is unlimited. In relation to the 1999 Tokai-mura fuel plant criticality accident, insurance covered 1 billion yen and the parent company (Sumitomo) paid the balance of 13.5 billion yen.
Russia is party to the Vienna Convention since 2005 and has a domestic nuclear insurance pool comprising 23 insurance companies covering liability of some $350 million. It has a reinsurance arrangement with Ukraine and is setting one up with China. It has some "interim" bilateral agreements to cover entities working under safety assistance programs, but the legislative deficit here is a deterrent to Western contractors in particular..
Ukraine adopted a domestic liability law in 1995 and has revised it since in order to harmonise with the Vienna Convention, which it joined in 1996. It is also party to the Joint Protocol and has signed the CSC. Operator liability is capped at 150 million SDRs (c €180 million). Special provisions provisions apply to work on the Chernobyl shelter so as to extend coverage outside the Vienna Convention countries.
China is not party to any international liability convention but is an active member of the international insurance pooling system. Its 1986 interim domestic law on nuclear liability corresponds with international conventions and the liability limit was increased to near international levels in September 2007. It is setting up a reinsurance arrangement with Russia which is more symbol than substance.
Hong Kong-listed Ping'an Insurance Company accounts for more than half of China's nuclear power insurance market, with its clients including nuclear power plants in Guangdong, Jiangsu and both first- and second-phase projects of Qinshan Nuclear Power Station in Zhejiang. Four Chinese Insurance companies provided US$ 1.85 billion worth of insurance to Tianwan Nuclear Power Station in Jiangsu, most of which will be reinsured internationally. About RMB 40 billion ($5.85 billion) insurance for the first two EPR units of the Taishan nuclear plant in being provided by Ping'an, All Trust, CPIC, PICC and others.
In late 2009 seven insurance companies and China Power Investment Corporation (CPI) signed a RMB 100 billion insurance cooperation agreement with China Guangdong Nuclear Power Co to insure the ten CPR-1000 units that CGNPC plans to build in the next three years. In December 2007 Ningde Nuclear Power had announced a US$2 billion insurance agreement with Ping An Insurance Corp for its 4-unit CPR-1000 nuclear power project in Fujian Province.
The Indian government has introduced a bill which will bring the country's nuclear liability provisions broadly into line internationally, making operators liable for any nuclear accident, and protecting third party suppliers. Operators need to take out insurance up to the liability cap of $110 million, and other provisions are related to the IAEA's Vienna Convention (1997 amendment).
Sources:IAEAWorldatom web siteNuclear Risks, by G.C.Warren, British Nuclear Insurers, 2000 (now: Nuclear Risk Insurers)NEI Nuclear Energy Overview 13/8/01,UNECAN News 9/6/00.Nucleonics Week 19/2/04.Brown, O.F. 2004, Nuclear Liability paper at WNA-NEI conference, Madrid.
Brain, S. 2006, personal communication (former chairman of the Australian Nuclear Insurance Pool from 1985 to 1997) re initial section.