Prospect Groupexperts have recently contributed to a study completed for the European Commissionon nuclear third-party liability (NTPL) insurance. The EC’s interest in morework on this topicwas driven by the following factors:

  • The differing legal regimes for NTPL evidentwithin EU member states have led to wide disparity between the amounts ofstatutory financial security required by nuclear operators to pay forcompensation to off-site victims that suffer nuclear damage (perhaps from asevere accident). For EU countries withnuclear power plants, these amounts range from €43.9 million in Bulgaria to€2.5 billion in Germany (the UK amount is currently £140 million). To fulfiltheir statutory obligations, nuclear operators normally buy insurance to coverthese financial security amounts.
  • A recognition that although the highest of these financialsecurity amounts existing today globally apparently correspond to the insurancemarket’s available capacity, they do not match the potential total costsresulting from a severe nuclear accident. For example, at the time of Japan’s Fukushimaaccident in 2011, the financial security amount required of the operator was ¥120billion (c. £844 million/$1.1billion) yet the compensation paid has alreadyexceeded ¥9.33 trillion ($85 billion/£66 billion).
  • There is currently some uncertainty as to whether the nuclearinsurance market can offer insurance cover for the full scope of the revisedliability regimes, due when the 2004 revisions to the 1960 Paris Convention areratified – probably early in 2021. The insurers have expressed concerns overthe insurability of some of the revised heads of damage and at present mosthave refused to cover the extension of the time limit to bring a claim forbodily injury or death from 10 to 30 years.

Despite these difficulties with the provision of nuclear insurance, insurers can meet much larger loss amounts for other events that cause widespread damage to businesses and homes, such as natural catastrophes, for which claims totalling more than $50 billion per event are now quite frequently paid. With other events easily able to call upon such sizeable amounts, the EC commissioned this latest study to discover whether insurers could provide substantially more insurance for severe nuclear accidents, and if so, under what conditions.

The previous EC work on this subject revealed some interest from certain insurers in providing materially higher insurance amounts for catastrophic nuclear losses, but with this insurance cover activated by a trigger of some sort. Of course, at present using a trigger to activate a nuclear site operator’s required financial security for NTPL compensation is not permissible – the funds must be available for all nuclear damage, no matter how it arises.

However, if triggers are combined with other mechanisms or if new capacity is used to supplement the existing financial security requirements, could governments (and ultimately taxpayers), as the payers of last resort, be moved further away from the cost of a severe nuclear accident? The EC thinks the subject is worthy of further study, which is timely as the gradual merging of the capital and insurance markets is opening up new sources of capital and new ways of looking at risk.

In addition,the EC feels that it has made progress on other fronts that could haverelevance to the field of nuclear liability. For example, in the EC’s view significantenhancements have been introduced to the EU legal framework, with the adoptionof the revised Nuclear Safety directive and the revised Basic Safety Standards(BSS) directive; in particular, the revised BSS directive lays down uniformdose limits covering public exposures and occupational exposures and requiresEU members to ensure that reference levels for emergency and existing exposuresituations are established.

Will thesechanges permit greater EC intervention in the field of nuclear liability and willmarket developments encourage insurers to commit higher insurance capacity tonuclear liability? To find out, the EC commissionedthe study to assess the latest structure and capacity of the insurance andfinancial markets in the nuclear third party liability arena, with a view to evaluatinghow and to what extent these private market providers could increase cover in theevent of severe nuclear accident.

Two future blogs will follow the EC study, examining firstly the current state of the NTPL insurance market and then possible mechanisms that might see more private capital and insurance backing NTPL financial security amounts.

About the Author

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

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  1. Insurance
  2. Nuclear

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