Canadian Underwriter

Industry evaluates nuclear Japan

March 23, 2011   by Suzanne Sharma

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The global insurance and reinsurance markets will be minimally affected by the damage at the tsunami-crippled Fukushima Dai-ichi nuclear power plant in Japan.

According to experts, material damage (MD) coverage is excluded in Japan when damage to nuclear plants is caused by a tsunami or earthquake.

Nuclear Risks Insurers Limited (NRI), an intermediary representing UK market P&C insurers (including Lloyd’s) that pool insurance capacity for nuclear risks, stated in a press release, “From an insurance perspective the perils of earthquake and tsunami are specifically excluded from MD cover where provided, and under the Japanese Nuclear Act of 1961 the operators are not liable for any nuclear damage arising from a ‘grave natural disaster of an exceptional nature.'”

Based on this, it will likely be the Japanese government that will have to absorb the costs of damage caused to the nuclear power plants as well as any damage caused by escaping radioactive materials.

NRI insures nuclear sites in the UK and reinsures nuclear sites around the world, and further stated it did not “anticipate significant losses from this event, although it is too early to assess completely nuclear insurers’ exposure to this event.”

In Canada, general liability pollution insurance policies usually have a nuclear exclusion.

XL Insurance for example, has a pollution product that only covers non-nuclear utilities such as natural gas plants and coal.

“Pollution conditions including low-level radiation would not be afforded coverage,” Carl Spensieri, environmental underwriter at XL Insurance told Canadian Insurance Top Broker March 16. “Something like what we’re seeing in Japan, this would not be afforded coverage under this policy.”

Instead, national associations cover nuclear risks, as well as the government.

“In North America, governments have stepped up with some sort of indemnity,” added Mary Ann Susavidge, executive underwriter in environmental at XL Insurance. “There is no need for that type of coverage because the governments are stepping up and tapping those liabilities.”

Insurer members can provide protection by participation in property and liability pools, such as the Nuclear Insurance Association of Canada (NIAC), an underwriting association of Canadian P&C insurers.

Lessons learned

Six days after the crippling 9.0 magnitude earthquake and subsequent tsunami, tremors are still occurring and Japan is dealing with the aftermath, including damage to the Fukushima Dai-ichi power plant.

As a result of the catastrophe, explosions rocked four of the six reactors and this has caused radiation levels in the city of Okuma (270 kilometres north of Tokyo) to elevate.

According to latest reports, military helicopters are dumping loads of seawater to help cool the reactor and plant operators are rushing to finish a new power line that could restore cooling systems. The government has ordered about 140,000 residents to stay indoors.

Denise Carpenter, president and CEO of the Canadian Nuclear Association stated it is important to put this situation into context with the Canadian nuclear power system, which has a strong safety record that spans almost 50 years and consists of 71,000 workers.

“Canada’s nuclear power plant operators have well-established and practiced emergency procedures that include emergency shutdown of the reactors,” she said in a recent release.

Spensieri stated that any time there is a natural disaster, people try to learn from it. The calamitous situation in Japan, for example, would teach people how to better prepare and respond to cat events.

For the insurance sector, the event will cause consumers to re-evaluate what type of insurance and coverage they’re buying, he said.

Susavidge added that clients might have thought their general liability policy would respond to a certain situation, but they’ll see there is a gap and it will create a need.

“It’s unfortunate that whenever there’s a natural disaster, that’s usually what raises awareness for our coverage line,” she added. “It’s an unfortunate situation that drives demand.”

This story was originally published by Canadian Insurance Top Broker.