Beyond Limits

Modern society has taken for granted creature comforts such as how electricity powers a furnace that provides warmth or a lamp that offers illumination, which a large part of the world can only dream about.

Where does that electricity come from? If one lives in Ontario, about 60% of the electricity is generated by nuclear power; in New Brunswick the figure is more like 30%.

However, the generation of electricity by nuclear power requires added layers of safety and security that other forms do not. The many layers of protection are military strategy called “defence-in-depth.”

In the highly unlikely event of a nuclear incident, a special nuclear liability regime exists in Canada, as well as in many other parts of the world, to address the civil nuclear damage that may occur. “The 1976 Nuclear Liability Act establishes a compensation and civil liability regime to address damages resulting from a nuclear accident. It applies to Canadian nuclear facilities such as nuclear power plants, nuclear research reactors, fuel processing plants and facilities for managing used nuclear fuel,” notes information from Natural Resources Canada.

NUCLEAR LIABILITY REGIMES AROUND THE WORLD

The operators of nuclear power installations in Canada are required to insure this liability with an insurer who has been approved by the Minister of Natural Resources. The Nuclear Insurance Association of Canada (NIAC) has been an approved insurer of nuclear liability since 1976 and has been providing the required limit of $75 million for these many years.

Unfortunately, this limit has not kept pace with international norms for the nuclear sector. Furthermore, other nuclear regimes in the world, such as the Paris Convention on Nuclear Third Party Liability and the Vienna Convention on Civil Liability for Nuclear Damages, have been revised and are nearing ratification by their respective participants.

The Paris and Vienna regimes were developed in the mid-1950s and were revised after the accident at Chernobyl.

The pooling system is closely aligned with the various nuclear liability conventions in force throughout the world, and was developed because of the main principles established under these conventions (commonly referred to as “channelling”). These main principles are as follows:

1. strict liability, that is, liability without fault;

2. exclusive liability of the operator;

3. limitation of this liability in amount and in time; and

4. obligation on the operator to cover this liability by insurance or other financial security.

The operation of the first two principles creates a channelling concept, in that all liability is channelled to the operator without right of recourse. These revised regimes seek to provide victims with broader protections, much higher limits of insurance coverage, and other improvements, including permitting a longer limitation period for submitting compensation claims for bodily injury, such as for latent illnesses.

The Nuclear Liability and Compensation Act, Bill C-22, currently being reviewed by the Senate of Canada, will include other significant improvements.

The legislation will contain expanded definitions of compensable damage to include economic loss, preventive measures and environmental damage. It will contain a longer limitation period for submitting compensation claims for bodily injury (30 years versus the current 10 years) to address latent illnesses, such as certain forms of cancer detected more than 10 years after an incident. The 10-year period would be maintained for all other forms of damage.

The proposed legislation will elaborate the features of a quasi-judicial claims tribunal to be established to replace regular courts if necessary, to accelerate claims payments and to provide an efficient and equitable forum.

THE CONVENTION ON SUPPLEMENTARY COMPENSATION FOR NUCLEAR DAMAGE

The new legislation will also implement the provisions of the International Atomic Energy Agency’s Convention on Supplementary Compensation for Nuclear Damage and allow Canada to become a party to the convention, notes a 2013 backgrounder from Natural Resources Canada. This convention is an international instrument to address nuclear civil liability in the event of a nuclear incident resulting in transboundary damage.

Joining the convention would bolster Canada’s nuclear civil liability regime by financially supplementing Canada’s domestic regime and by clarifying liability and compensation rules for transboundary and transportation incidents.

Of the existing international nuclear liability conventions, the Convention on Supplementary Compensation for Nuclear Damage is the most attractive for Canada as it would establish nuclear civil liability treaty relations with the United States, which is already a party.

In addition, the new legislation would ultimately increase the liability limit to $1 billion. (The initial limit will be $650 million, which will increase over a three-year time frame to $1 billion.)

This is important in light of an emerging nuclear insurance landscape – changes reflect elements in the revised Paris convention to update nuclear liability and also the recent catastrophic events at Fukushima – that is putting upward pressure on capacity for the country’s nuclear operators.

OPPORTUNITY FOR CANADIAN INSURERS

As an approved insurer of nuclear liability in Canada, NIAC is responding to this requirement for increased limit. NIAC has prepared for an expected increase of nuclear liability from $75 million to $1 billion, with increased efforts to attract additional Canadian capacity by reaching out to both current and past stakeholders.

Canadian insurers now have an opportunity to be involved in a non-correlated line of business that in the past 38 years has had no losses. NIAC is basically the nuclear department of all member companies that controls the underwriting, loss control and claims management activities for this line.

All insurers have nuclear exclusions on property, liability and auto wordings, and because of this, their participation in the pool would not create a clash within their own book of business. Furthermore, insurers participate to a maximum of a “net-line,” based on their respective risk tolerance.

Each insurer can decide the level of commitment to the pool; there are no dictates from regulators, as the pool is a volunteer association. The operators are required to insure the limit imposed upon them by the Nuclear Liability Act.

A strong viable pool in Canada provides security to garner all the necessary capacity to cover this important risk from international nuclear pools.

HOW SAFE ARE NUCLEAR POWER STATIONS?

This is a question that is often asked, especially since there have been two nuclear accidents – Three Mile Island (1979) and Chernobyl (1986) – caused by human error and design, and Fukushima (2011) caused by external natural disaster.

However, the lessons learned in these accidents and the resulting changes have transformed the way nuclear power stations are built, maintained and operated.

Many redundant safety systems and advances in technology, coupled with the checks and balances of quality programs, human performance reviews and “beyond-design-based” analysis, have resulted in a safety culture, prevention and mitigation techniques for extremely low-probability, but high consequence, external events.

Notwithstanding these improvements and the confidence about the safety of nuclear power plants exhibited by the pools, increasing use of nuclear energy continues to demand an efficient and equitable method of providing compensation to victims of a nuclear accident.

TRUE RISK TRANSFER

The nuclear insurance pools were formed when there were very few nuclear risks and the financi
al resources of many insurers were required to provide the necessary coverage. The worldwide nuclear pooling system that was developed represented the best risk transfer mechanism for this potentially catastrophic exposure.

The pools are not subject to the insurance market price fluctuations that characterize the hard and soft markets that the conventional insurers must deal with. The pools are, in effect, funding for a catastrophe; it is, therefore, important that the underwriting approach be conservative and consistent, preserving the assets of its members.

The solvency of the member companies is also protected even should a catastrophic loss occur.

The Canadian nuclear pool is well-positioned to meet the nuclear insurance requirements of the nuclear industry with the changes coming under Bill C-22.