Insuring Against Nuclear Catastrophe

Ordinary Canadians watching Japan attempt to avert a potential nuclear catastrophe might be fooled into thinking they are not covered by insurance in the event of a similar nuclear incident in Canada.

They are.

It’s just that at first blush, it seems like they aren’t. That’s because of nuclear exclusions existing in Canada’s homeowner and commercial general liability polices. But in the convoluted logic that can sometimes be insurance, those exclusions actually make it possible for insurers to cover (more) damage claims in the wake of a nuclear catastrophe. Here’s how the regime works in Canada.

In June 1958, a nuclear insurance pool formed in Canada. This ‘pool’ or group of national insurers is intended to spread the risk of damage caused by a nuclear event over a very large financial base. The pool system allows insurers to participate at their individual risk tolerance levels; at the same time, the pooling allows insurers to amass large amounts of capital to cover nuclear risks that are extremely rare historically and therefore difficult to quantify.

Nuclear insurance pools cover the liability of nuclear operators in the event of a nuclear catastrophe. Under Canada’s Nuclear Liability Act, passed in 1976, operators must carry insurance covering nuclear incidents.

As of last year, 27 nuclear insurance pools existed across the world. Japan has a nuclear insurance pool as well (Japan also has nuclear exclusions in its general homeowner and commercial insurance policies).

Membership in the pools is on a volunteer basis. Regional pools can draw on the capacity of other regional pools. Canada’s pool, for example, has access to capacity drawn from insurers participating in the United Kingdom and United States nuclear insurance pools.

The Canadian pool currently has 20 members, including Lloyds, for a total liability capacity of approximately $68 million. Additional capacity will be needed if, as anticipated, the limit is increased to $650 million, but more on this later.

Where does the public fit into this? The Canadian nuclear insurance pool is responsible for compensating Canadians for damages arising from a catastrophic event related to a nuclear reactor operating in this country.    

The Nuclear Liability Act outlines how Canadians make claims in the event of a nuclear incident in Canada. Basically, the Canadian government forms a nuclear claims tribunal or ‘commission,’ which would have the power to determine the payment of interim financial assistance to victims. The operator’s nuclear liability policy would respond to the claims, and the operator’s policy would be insured with the capacity amassed by the pools.

Canadian legislation is designed to make the claims process relatively straightforward. First, it channels all responsibility for a nuclear event to the operator. This means claimants don’t have to waste their time in court proving who was truly at fault for the nuclear catastrophe. Insurers are thus able to channel all of their financial resources to cover the liability of the operator.

And this is where the homeowner and commercial general policy exclusions come in. By removing liability for nuclear incidents from general homeowner and commercial insurance policies, insurers can now concentrate and channel all of their resources into paying the claims made against nuclear operators. This makes it easier to track the insurers’ accumulation of capacity for nuclear-related claims.

Prior to the election, legislation was in the works to increase nuclear insurers’ existing liability limit of $75 million to up to $650 million. Also, the proposed legislation would have extended the time period for making claims from 10 years (as it now stands) to up to 30 years after a nuclear incident.

These recommendations were made in Bill C-20, which died on the order paper when Parliament was prorogued in late 2009. The recommendations were once again tabled in Bill C-15, which as of press time had made it to second reading.

The current election has scuttled the legislation once again. Count the insurance of nuclear risk among the fallout of Canada’s bitter, partisan politics.