Aishwarya Saxena*

Risks and Problems

Dating back from the construction of first nuclear power plant, there has been concern about the possible effects of a severe nuclear accident, coupled with the question of who would be liable for third-party consequences. India has passed the Civil Liability for Nuclear Damage Act, 2010 making operators liable for any nuclear accident wherein, operators need to take out insurance or any other financial security up to the liability cap of Rupees one thousand five hundred crores. This law posed to the insurers, entirely new risks and separate but inter-related problems culminating into a blurring dilemma.

The insurance industry has, with little success, been wrestling with the charades of how best to provide cover for the emerging nuclear industry and, secondly, how to provide protection for the general public without exposing their solvency margins to the potentially catastrophic losses that could arise from widespread radioactive contamination.
By reason of their nature and size, large nuclear risks have been, from the outset, beyond the resources of any one national market - let alone an individual insurer - clearly, traditional insurance mechanisms were not suited to covering such risks. While Channelling of all nuclear liability to the operator has emerged as a fundamental principle and has been featured in the national liability legislations all across the world by either legal or economic channelling,rapid compensation and provision of maximum capacity demand the assurance that only one insurance policy must respond to all claims arising from a nuclear incident in order to avoid the costly and time-consuming investigation and possible litigation on the question of who is ultimately liable for damages.
Experience so far tells that the risks presented by the nuclear industry are low-frequency but high-cost events. On the one hand, they demand a deployment of capacity by the insurance market that is greater than in any other sphere of industrial activity, but on the other, “these low frequency and high intensity risks” which are few in number present an unbalanced portfolio. Countries around the world have their own nuclear liability regimes in place either by becoming a part of the international conventions or by designing their own frameworks. Talking of India, the Civil Liability for Nuclear Damage Act, 2010 brings the country's nuclear liability provisions broadly into line internationally, making operators liable for any nuclear accident, but without protecting third party suppliers. The Act requires operators to take out insurance or any other financial security up to the liability cap of Rupees 1500 crores.

Experience over five decades has however, shown the fear of catastrophe to be exaggerated, though the local impact of a severe accident or terrorist attack was shown at Fukushima in 2011 to be considerable, even with no direct human casualties from the nuclear accident (contrasting with 19,000 deaths from the tsunami which caused it). A nuclear incident is capable of crippling generations. This has been learnt from the Chernobyl incident which killed 30 people directly, and damaging approximately $7 billion worth property. A study published in 2005 estimates that there will eventually be up to 4,000 additional cancer deaths related to the accident among those exposed to significant radiation levels not to forget the genetic mutations. Dangerous as it is, nuclear power is essential to meet the burgeoning energy requirements of our innovative species.

Challenges
The problem of how to provide cover for the nuclear industry itself was particularly difficult to resolve because it involved-

• the impossibility of establishing accurate estimates of frequency in the absence of statistical data;
• the potential risk of enormous damage arising from contamination and the resulting cessation of economic activity affecting large numbers of population over widespread geographic regions, followed by long delays in claims notification as many of the effects on health only become manifest over a considerable period of years.

The insurance industry world over has responded to these difficulties by the formation of market-wide national Pools and by the widespread adoption of exclusion clauses in their non-Pool portfolios as a mechanism to harness the greatest possible capacity commitment in support of the nuclear industry. There are now 26 such market Pools, yet even with these it is still not possible to provide full insurance cover for all nuclear operators’ exposure to risk.

Nuclear Insurance Pools and Inter-Pool Reinsurance

A Pool is essentially a mechanism whereby a number of insurers agree to appoint a common agent to underwrite jointly a particular risk or class of business. It is a mechanism commonly employed where the risks in question are few in number, or which require a capacity beyond the individual means of the members even if arranged on a traditional co-insurance basis, or which presents some particularly hazardous aspects which would render acceptance by conventional methods difficult, if not impossible. Pools are free to reinsure their business with other pools. Nuclear Pools have developed “Standard Rules for the Exchange of Reinsurance between Pools” in order to establish clearly the guidelines for the commonly adopted and accepted practices for the exchange of business.

Indian Nuclear Insurance Pool

The structure of insurance of nuclear installations is different from ordinary industrial risks. Insurance is placed with the national insurance pool which brings together insurance capacity for nuclear risks from the domestic insurers in the country, or into one of the overseas mutual insurance associations such as Nuclear Electric Insurance Limited (NEIL) based in US or EMANI and ELINI based in Europe. Third Party liability involves international conventions, national legislation channeling liability to the operators, and pooling of insurance capacity.

In India, Section 8 of the CLND Act mandates insurance or other form of financial security for the operator before starting the operation of his nuclear installation. Rule 3 further supplements this provision of the Act by providing that the operator shall take out an insurance policy or financial security. Seeking other forms of financial security may be cumbersome and may block the capital of the operator and therefore, the operator may prefer to go in for insurance of his plant which will simply involve some recurring revenue expenditure towards premium. Citing the challenges that the nuclear industry in India faces, one may conclude that there are only two major obstacles that stand in the way of nuclear insurance and they are both interlinked. These two obstacles are:

• Capacity
• Inspection of Nuclear Installations by Foreign Nationals

While the answer to the question of capacity could be sought in international nuclear pools, the latter emerges out of the very solution obtained. Gathering capacity with the help of international nuclear pools has its own implications that further complicate the situation. The restrictions on inspection of nuclear installations by foreign nationals rules out the option of collaboration with them and this leaves the insurance industry with no other choice but to generate indigenous capacity which itself is an issue. But as evident from our past experience we have always succeeded in creating our own ways of countering the most complex of problems. If we can evolve as such a powerful nuclear state and independently run six nuclear installations while being isolated from the rest of the world, we can definitely create enough capacity to insure them. Therefore, there is an immense need of developing a nuclear pool compatible with the requirements of the operator and the interests of the insurer.

Insurance for the Supplier

Indian law under clause (b) of section 17 provides right of recourse against the supplier of the nuclear material or equipment or substandard services. Further though the Act does not mandate insurance for suppliers, they may be interested in insuring their liability to the operator and obtain insurance cover. It is commented that insurance to the supplier is not available anywhere in the world. This however, is nothing but the product liability and insurance thereof. A supplier shall be vicariously liable for the acts of his employees and contractors.

Way forward

At the end of the day, nuclear energy is the elixir to the burgeoning energy requirements posed by our kind and devising an apt framework for its further development is turning into a desperate need of the hour. To sum up, steering India’s way through this dilemma would make a two pronged approach desirable viz., joining the international pool abroad in order to reinsure the risk in respect of the imported nuclear power plants e.g. Tarapur, Kudankulam and Jaitapur where India has no intellectual property or technology related issues and inspection of such plants may not be an issue for the country as no indigenous technology is at stake; and the Central Government becoming the guarantor or the insurer of the last resort in respect of indigenous plants where such issues are vital and inspection by foreign inspectors from the reinsurance pools is not considered desirable.

*Ms. Aishwarya Saxena, Member of Nuclear Law Association, India is a student at the SNDT Women’s University’s Law School. Ms Saxena interned with the Nuclear Liability Insurance Pool at the General Insurance Corporation of India. The views expressed are those of the author and does not represent views of GIC Re or NLA.