Nuclear Risk Insurers Limited (NRI) – (originally the British Insurance (Atomic Energy) Committee – and British Nuclear Insurers) was established in 1956 by Insurance Companies and Lloyd’s Underwriters to manage the Pools formed for the insurance of public liability, material damage and business interruption risks of nuclear installations. The change of structure and title to “Nuclear Risk Insurers” (NRI) took place with effect from 1st October 2003.
The Insurance Companies and Lloyd’s Underwriters who support NRI have all signed a Pool Members’ Agreement (PMA) and have thus delegated their authority to the NRI Board of Directors. In turn the Board delegates much of its authority to the permanent staff of NRI.
NRI is a company limited by guarantee, a business structure suited to non-profit organizations. The member companies’ liability is limited to a prescribed amount and all premiums received are remitted to the member companies. NRI therefore only has to account for its running costs.
The categories of nuclear installation and risks insured by NRI are as follows:-
Land based reactors, ancillary buildings, nuclear fuel and generally all other property on the designated site.
Plants for any manufacture, fabrication or processing of nuclear fuel, other than natural uranium, including the reprocessing of irradiated nuclear fuel.
Plants for processing or disposal of nuclear waste arising from the nuclear fuel cycle.
Factories for the separation of isotopes of nuclear fuel.
Buildings concerned with the storage of enriched or irradiated fuel used or to be used in any reactor, or nuclear waste arising from nuclear fuel.
Research establishments using nuclear substances.
Construction work taking place on a designated nuclear site.
Any other installation considered by National Law to be a nuclear installation and for which the operator is obliged to insure for third party risks up to the minimum sums set out in the Paris or Vienna Nuclear Liability Conventions.
Nuclear liability insurance for the international or national transportation of nuclear materials.
NRI (often referred to as “the British Nuclear Pool” in the same way as its predecessor) provides cover for the aforementioned installations and risks in respect of public liability (which may include liability for products, professional indemnity and certain other contingent liability insurances) and material damage (which may include consequential loss and, in certain circumstances, mechanical and electrical breakdown of nuclear plant) and liability insurance in respect of transports of nuclear matter. New nuclear plant under construction is not covered by the British Nuclear Pool until it becomes ‘nuclear’, upon the delivery of nuclear fuel to the site or loading of fuel into a reactor, but insurance cover is available for construction risks on operational nuclear sites.
Furthermore, NRI can provide products liability cover in respect of independent contractors engaged in the supply of goods of services to nuclear installations.
NRI today represents the largest single block of risk transfer insurance capacity in the world, at around £400m ($700m) and is also one of the oldest nuclear insurance entities in the world (founded in 1956).
Method Of Operation
Capacity is subscribed from 1st January each year and can be withdrawn or renewed each year in accordance with variation procedures laid out in the PMA. NRI is only able to accept insurances or reinsurance for a period not exceeding 12 months (plus odd time), but any risks accepted during the course of a year will be carried through to their expiry date.
NRI operates on an underwriting year of account basis with each account remaining open for three years, so as to ensure realistic assessment of any claims or notifications of incidents. At the close of an underwriting year transfers are made to the next year’s account in respect of outstanding claims and claims incurred but not reported. NRI does not retain unearned premium reserves and distributions of surpluses are made to members at quarterly intervals.
Activities Of NRI Ltd
The activities of NRI can be broadly divided into the managing of its insurance and reinsurance activities and its wider representational roles:
NRI directly services the needs of UK and some other nuclear industry clients and their Brokers, arranging suitable insurance covers whilst it also provides reinsurance for other nuclear pools overseas as required. The major part of the British Nuclear Pool’s income currently comes from the facultative reinsurance accepted from other nuclear pools where NRI’s capacity often permits it to play an important part. All reinsurance offers submitted are carefully underwritten to ensure that terms and conditions match the UK market’s technical requirements – if this is not the case such business is declined.
As one of the first nuclear insurance pools to be formed, NRI has always played a leading role in encouraging the growth of nuclear insurance capacity internationally. This has led to the development of good reinsurance relationships with some other international nuclear pools and has facilitated the rapid provision of extremely well rated insurance security for nuclear clients all over the world.
NRI employs a full time nuclear technical expert and has access to much nuclear expertise through a large network of industry experts, other pool technicians and consultants; contact is also maintained with the Nuclear Installations Inspectorate (the UK nuclear industry regulator).
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 singed 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.
In Finland a 2005 Act requires operators to take at least €700 million insurance cover, and operator liability is unlimited beyond the €1.5 billion provided under the Brussels Convention. Sweden has ratified the 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 302 million), beyond which the state will cover to SEK 6 billion per incident.
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 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. The limit of C$75 million per power plant set in 1976 as the insurance cover required for individual licensees was increased to $650 million in the Act’s 2008 revision, though this has not yet passed. Cover is provided by a pool of insures. Beyond the cap level, any further funds would be provided by the government.
Japan is not party to any international liability convention but its law generally conforms to them. Two laws governing them are revised about every ten years: the Law on Compensation for Nuclear Damage and Law on Contract for Liability insurance for Nuclear Damage. Plant operator liability is exclusive and absolute, and power plant operators must provide a financial security amount of 60 billion yen (US$ 600 million). From 2010 this doubles to 120 billion yen (US$ 1.2 billion). Beyond that, the government provides coverage, and liability is unlimited.
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.
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.
ROAD MAP FOR INDIA
The nuclear treaty of last year allows India to carry out nuclear trade, have options for nuclear power and access to sensitive technology which are also used for nuclear weapons. Following the Indo US Nuclear deal, private nuclear plants can be set up in the country now.
But absence of clear guidelines & insurance coverage is proving to be a roadblock for the set up of new plants.
Currently, nuclear risks are not covered by any policy, as insurers do not have the wherewithal to estimate liabilities. All property insurance covers exclude losses due to nuclear reaction, nuclear radiation or radioactive contamination.
The solution to this problem can be the establishment of a nuclear pool on the lines of Terrorism Pool which was set up in India after foreign reinsurers cancelled their contract following the September 11 event in US. Presently in most of the countries as explained above, there is a pool arrangement to take care of the nuclear risks.
The pool can have participation from all the insurance companies present in India who wish to write nuclear risks. Also it should be mandatory for all the nuclear establishments to have insurance cover before the commencement of operations. The rate of premium can be function of MW of the plant to be applied on the Sum insured of the establishment.
Initially the pool will offer a limit of liability to the tune of USD 100 Million which may be increased subsequently as the reserves for pool grows with domestic and international business. All the nuclear plants operating in India will have to abide by the international guidelines for fire nuclear risks (latest one being in year 2006) which are updated from time to time. Similar guidelines exist for Machinery breakdown as well.
The pool can arrange reinsurance support for the liability of USD 100 Min with the help of international reinsures or similar pools like British Nuclear Pool. Similar to pools in other countries, the pool can spread the risk by providing support for international business and other pools through some reciprocal arrangement. The insurance companies will cede all the premium collected for the nuclear risks to this pool which will be distributed among the member companies to the extent of their participation.
Then we can have a secondary layer of protection similar to that practiced in USA. To start with, this layer can have capacity for another USD 500 Million. Should any loss exceed USD 100 million, it will be paid from this secondary layer. The capacity for the secondary layer will be generated by collecting retrospective premiums from the existing nuclear plants based in India. In short, any loss exceeding USD 100 Mln will be redistributed among the nuclear plants in the form of retroactive premiums. With the advent of more players, the capacity for secondary layer can be enhanced subsequently to USD 1 Billion or may be more. The government will step in only when both the layers are exhausted.
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.”