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Nuclear Risk Insurance

The Three Mile island nuclear power facility.

Guest Post by Luke WestonLuke is a Melbourne-based physicist and occasional freelance electronic engineer, with a strong interest in educating the community about nuclear energy and related issues.

It is often said by the anti-nuclearists that the commercial nuclear energy industry “can’t get insurance” against the risks of nuclear or radiological accidents, or that it is “uninsurable”. This is simply garbage, a myth, a load of baloney that gets exclaimed backwards and forwards between the anti-nuclearists, without any of them ever bothering to actually check the facts or do the research. It’s simply a meme, one of many nonsense pseudo-fact memes that persist in the community of people who are really just devout believers that nuclear energy is bad.

The Price-Anderson Act in the United States is often bought up by anti-nuclear activists as some sort of damning evidence of preferential government treatment for nuclear energy, but it’s actually quite the opposite – it’s legislation which imposes exceptional demands on nuclear energy above and beyond any other industry; demands which are completely out of proportion to the reality of the demonstrably low risk of nuclear energy, especially relative to other energy sources.

This should be compared with the risks associated with other important energy generation systems, where the industry is not insured in any such way against significant impacts on society and the environment.

In this post I’ll focus the discussion mainly on the Price-Anderson act in the United States. How does this relate to other nations? I’m not really in a position to say. How does this relate to the earthquake and tsunami-related damage to the Fukushima-Daiichi reactors? I’m really not in a position to say. What is the position of the Japanese government regarding the amount of private-sector insurance coverage that their nuclear energy industry is required to maintain? I really don’t know and I won’t pretend to know – but you can do the research, ask skeptical questions, think critically and evaluate the evidence just as well as I can, if you want to find out.

When there’s a catastrophic disaster on an oil rig or a coal ash dam or a natural gas pipeline or a coal mine in the United States and people lose their lives and/or there is severe environmental damage, where are the Price-Anderson style requirements for insurance and industry liability coverage for those industries? They do not exist.

In these kinds of incidents, the government is likely to spend a fortune managing and cleaning up the effects. Sites polluted by the fossil fuel industry and the chemical industry in the United States are all too often cleaned up as Superfund sites; these industries are not required to take responsibility for themselves in the same way that the nuclear energy industry is.

 (As an aside, we’re not talking about old, deteriorating underground tanks of radioactive fission-product raffinate that were produced at the Hanford Site in a great rush at the end of the Second World War and during the Cold War and were not properly treated and packaged and contained, of course – the DOE is responsible for cleaning up that site, and the nuclear power industry in the United States has got nothing to do with it. Anti-nuclear activists love to muddy the waters and change the subject, though.)

The air pollution resulting from the use of coal and other fossil fuels causes around 30,000 premature deaths in the United States each year – does the coal generation industry have appropriate insurance coverage? The risks from catastrophic flooding resulting from the failure of a hydroelectric dam, for example, are borne directly by the public. The 1977 failure of Idaho’s Teton Dam caused about half a billion dollars in property damage – but the only compensation provided to the affected communities was around 200 million dollars worth of low-cost loans provided by the government.

Nuclear power plants in the United States have literally never harmed anyone. The large liability and insurance pool which the industry provides as it is required to by the Price-Anderson act has almost never been touched at all, and not one cent in Price-Anderson liability has ever been paid out from the government’s liability which might exist, theoretically, if the industry’s own private insurance coverage was entirely exhausted.

The commercial nuclear energy industry in the United States has over 10 billion dollars worth of liability insurance protection provided by the commercial sector, covering them in the event of claims resulting from some kind of nuclear energy-related incident sufficiently catastrophic so as to have a deleterious impact on the community outside the plant boundary. The utilities using nuclear energy (and, indirectly, the consumers of nuclear electricity, for whom the cost of the required insurance constitutes a tiny portion of the cost of their electricity; a fraction of a cent per kilowatt-hour) – not the federal government or the American public – pay for this insurance.

Fukushima Daiichi nuclear accident

The Price-Anderson Act requires that the nuclear energy industry has massive pools of liability insurance, which is provided by the private, commercial insurance industry. These insurance pools have paid out a total of more than 200 million dollars in claims and litigation costs since the Act came into effect, mainly as a result of dubious claims supported by anti-nuclear activist groups, particularly following the Three Mile Island accident, which did not have any bona fide health physics impact on any person outside the plant’s boundary. (It is important to point out that not once has any of these claims ever involved a bona fide case of illness or injury to a person relating to ionising radiation or radioactivity from a nuclear power reactor, supported by legitimate evidence.) The American taxpayer has not paid one cent of this.

(This is quite similar to the way that anti-vaccination activists seize on any case where a court has awarded any damages to a person with an illness that they say is “caused” by vaccination, and claim that this is actually proof of unreasonable harm actually being causally associated with the vaccination, which is in fact not the case.)

While the nuclear energy industry’s insurance pools have paid out about $200 million in claims, and the industry has actually paid about 21 million dollars to the US government in indemnity fees, again, the American taxpayer has never paid for any of this. The Price-Anderson Act does not give the commercial nuclear energy industry in the United States any government money; it is actually a set of government requirements requiring the commercial nuclear energy industry in the United States to spend money.

The Price-Anderson Act requires nuclear energy utilities to demonstrate evidence of financial protection – nuclear power licensees are required to provide a total of more than ten billion dollars in pooled insurance coverage to compensate the public in the event of a catastrophic nuclear accident. Wherever they are available to the commercial insurance industry, nuclear power stations in the Western world actually represent sought-after business because of their high engineering and risk management standards. This has been the case for fifty years.

Significantly, because the RBMK reactors at Chernobyl were of a design that was never acceptable to anybody outside the Soviet Union, notably due the lack of any containment vessel as well as due to the intrinsic physics characteristics of the reactor, the accident had no impact on premium rates for the commercial Western nuclear energy industry.

The structure of insurance practice in relation to the nuclear energy industry is different from the management of ordinary industrial risks. It involves international conventions, national legislation channelling liability to the operators of the plants and mandating very large insurance pools taken out by the nuclear energy industry from the private-sector commercial insurance industry and the pooling of insurance capacity in more than twenty countries.

Risk modellers work with probabilities, models and data

The approach of the national nuclear insurance pool was primarily developed in the United Kingdom in the 1950s as a way of marshalling insurance capacity for the coverage of the then-novel and exotic perceived risk of radiological accidents or reactor accidents. Other national pools that followed were modelled on the UK pool, forming the association of insurance brokers serving the nuclear energy industry that is in business today as Nuclear Risk Insurers Limited.

NRI’s capacity comes from eight insurance companies and 16 Lloyds syndicates, and it represents the largest single block of risk transfer insurance capacity in the world, at more than 400 million British pounds. It also reinsures other nuclear energy industry insurance pools worldwide. It covers risks including property, industrial risk in all parts of the nuclear fuel cycle, such as the nuclear fuel handling and radioactive waste management industries, construction work on nuclear energy sites and transport liabilities. The role of the commercial insurance and actuarial sectors in understanding and underwriting the risks associated with the commercial nuclear energy industry is discussed at greater length in 2008 issue three of Market magazine, the industry journal of Lloyds of London.

In the United States, one of the major commercial insurance providers specialising in nuclear energy is Nuclear Electric Insurance Limited. NEIL insures domestic and international nuclear utilities for the costs associated with interruptions, damages, decontaminations and related nuclear risks. If the commercial insurance industry will not provide any coverage for the commercial nuclear energy industry, as anti-nuclearists often claim, then would they care to explain what it is exactly that these nuclear-specialist insurance corporations actually do?

Risk is quantitative. It’s a number. Consequences, expressed financially, multiplied by the probability of a particular contingency – or the sum of the consequences of every different possible contingency, with all the different possible adversities and contingencies weighted by their probabilities. Anti-nuclearists seem to have a really hard time understanding this fact, and since this simple fact is at the foundation of how insurance works, I guess that’s why anti-nuclearists seem to have such a hard time understanding the insurance industry and how it relates to nuclear energy.

The commercial insurance industry will provide you insurance for absolutely any kind of risk, as long as they can actually quantitatively estimate what the risk really is. The industry will provide a successful professional singer with insurance coverage against the risk of some kind of injury damaging her ability to sing, and you cannot seriously say that this risk is any easier to quantify than the risks associated with the commercial nuclear engineering sector.

see Chapter 8 – Understanding Risk

If they can put a probability and a cost on it with any reasonable degree of confidence, then the commercial insurance industry can sell you insurance for it. When dealing with a relatively complex system such as a nuclear power plant, these risks are quantitatively assessed through Probabilistic Risk Assessment.

When dealing with a situation or with a technology which is perceived to involve greater risk than it really actually does, then it seems like this would present an attractive opportunity to the commercial insurance industry – because you can charge the customers higher premiums to provide the same degree of coverage of real-world risk, right? Nuclear energy certainly seems like a good example of such an industry, doesn’t it?

The Price-Anderson Act seems to exist only because of the completely distorted, false, unrealistic idea that nuclear energy is an extremely risky business. But the reality, which we see confirmed from direct, empirical, real-world experience basically every week, is that nuclear energy is literally the safest form of energy generation there is.

Incidentally, some people suggest today that the Price-Anderson model has been very successful and suggest that, in the wake of fossil fuel disasters such as the Deepwater Horizon well blowout, that it should actually be copied for the oil industry, the fossil fuel industries, the chemical industry and the like, so that such industries are required to cover their risks to the public and to the environment adequately, too.

However, personally I do not think this would actually work in practice, because it works well in the context of nuclear energy simply because nuclear energy really is very safe, and I don’t think that it is economically practical for industries like the oil and coal and gas industries which really do present high risks to health and to the environment to be forced to hold large amounts of liability coverage in the event of all too common accidents in the same way that the nuclear energy industry is under the terms of the Price-Anderson Act.

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