Irda sounds out insurers on nuclear accident cover
29 Dec 2009, 0224 hrs IST, Hema Ramakrishnan & Mayur Shetty, ET Bureau
NEW DELHI|MUMBAI: A year after private nuclear plants became a possibility in India following the Indo-US nuclear deal, the insurance regulator is deliberating with companies to cover liabilities arising out of nuclear accidents, which is essential for such plants.
“Our discussions on insurance covers for nuclear risks are at a preliminary stage,” Irda chairman J Hari Narayan told ET. “We need to examine global practices of covering such a liability before taking a final view,” he said.
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. But the absence of rules for insurance in the sector prevented progress in setting up 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.
In most countries, operators of nuclear plants buy insurance cover as they are liable to pay compensation for any damage. Normally, the liability is limited by both international conventions and national legislation. The state has the responsibility to accept any liability more than insured. The absence of such covers here may make it difficult to fund relief, if an accident occurs.
The US, for instance, is not bound by any international nuclear liability convention.
The liability from a nuclear accident is addressed by the Price Anderson Act of 1956, which provides $10 billion in cover without cost to the government. It covers power reactors, research reactors and all other nuclear facilities. 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.
The beginning of discussions itself may not lead to a set of rules soon, since the negotiations with global re-insurers are going to be hard. “There is now scope for private sector participation in nuclear power generation. We have been working with international re-insurers to form a pool to cover nuclear risks. But that will take some time to fructify,” said Yogesh Lohiya, chairman, GIC.
Incidentally, a partial cover for nuclear power plants was introduced by Oriental Insurance earlier under the chairmanship of Mr Lohiya. “At that time, providing a cover was difficult, as
re-insurers wanted inspection of the site, which was not possible. Despite this, we managed to arrange cover for the cold zone of nuclear plants,” he said. A nuclear power plant has a “hot zone”, which is the critical area where the nuclear reactions take place and a “cold zone” where steam generated turbines are operated.
A pool mechanism, as in the case of terror insurance, may be a suitable one, said M Ramadoss, CMD at Oriental Insurance. Under a pool the premium collected by various insurers under terror cover are kept in a separate account. For any claim beyond a prescribed amount, the company dips into the pool resources to pay for claims. But that may not be enough, since claims from nuclear accidents could be huge and it may need government support
“The capacity of insurance industry may not be enough for nuclear incidents, although a nuclear incident lends itself better to modelling than a terrorist attack. Nuclear incidents are insured to certain extent, but not entirely. In most countries, they have pools which take the bottom part of the risks. On top of that, you tend to have a government scheme,” Nikolaus von Bomhard, chairman of Munich Re had told ET.
Pooling is not the only issue that needs to be settled, but also
inspections of sites by re-insurers who may have to take the major portion of liabilities, if accidents occur. “We are ready with the wordings. But there are issues over the inspection of the plant sites by re-insurers that need to be sorted out,” said Mr Ramadoss.
However, senior industry experts are wary of the capacity of the insurance industry. “In the case of terror risks, it is easy to have a pool as everyone wants to buy terror cover. This has led to the creation of a pool with the capacity to underwrite risks. But, we do not know how many will buy the add on cover for nuclear risks,” said a chief underwriter with a non-life company, who did not want to be identified.
Nuclear insurance may not be just for an accident, but can be for an extended period since the nature of the business leads to potential damages for generations. “The primary issue is the slow gradual degradation of radioactive matter where the damage may be felt not just over years, but across generations,” said a CEO of another insurance company. “Besides, the impact of a nuclear incident may not just be from Indian soil.” He said there was also an issue of the private participant’s liability.
In legislation, which it plans to bring, the government has proposed capping the liability for the operator of a nuclear installation at Rs 300 crore. This has been opposed by some, most notably by the former attorney general, Soli Sorabjee, who has argued in a number of newspaper articles that the capping violates Supreme Court judgements.
There should also be some liability on the technology provider to make sure that they are not dumping outdated technology in India, an expert said.
In the UK, the Energy Act 1983 prescribed a threshold for liability of particular installations. A large chunk of the insurance is provided by a pool of UK insurers, called the Nuclear Risk Insurers. The government provides a level of assistance beyond the cap of £140 million. In mainland Europe, individual countries such as Germany, France and Switzerland have legislation in sync with the international conventions and cap levels vary.
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