In 1979, when John Quattrocchi was a young insurance man, he was dispatched to the nuclear accident scene at Three Mile Island in Pennsylvania. The area was virtually deserted, except for some residents who didn't make it out or didn't want to. Among the former was a young family--a husband, a wife and two children--who appeared at breakfast one morning at the motel where Quattrocchi and his colleagues stayed.
The wife was tearful, anguished over the safety of her family. A waitress tried to console her. "Please," she said, "there's no need to worry." She pointed across the dining room. "See them? They're with the insurance companies. They wouldn't be here if we were in real danger. But watch them carefully, because when they leave, we leave!"
That piece of dark humor speaks to the development of nuclear power, or lack thereof, over the past two and a half decades in the United States. Nightmare scenarios, fueled by fear of fallout or meltdown from incidents at Three Mile Island and, later, at Chernobyl in the Ukraine, had a lingering and chilling effect on the expansion of nuclear energy. Now, buoyed by a Bush administration policy that places high priority on nuclear power for the first time in a generation, the industry is poised for a renaissance--and the nuclear insurance business is poised for a rebirth of its own.
"You're beginning to see a renaissance in this industry," says John Quattrocchi, who today is senior vice president for underwriting of American Nuclear Insurers, a 36-year veteran of a near 50-year-old joint underwriting association. "John Q.," as he's known, is arguably the nation's foremost expert on the subject.
"Obviously, as the nuclear industry grows, our business grows as well," he says. "But between now and when new units come on line, there is a gap between desire, license application and the time needed to construct new plants. So, yes, we look to growth in our own business, but we're realistic enough to know that could be a decade away."
Already, construction on three new domestic reactors is under way--in Clinton, Ill.; Port Gibson, Miss.; and Mineral, Va. A go-ahead from the Department of Energy and the Nuclear Regulatory Commission may come as early as 2009.
"I am very confident that there will be more nuclear power plants built sooner rather than later," says Dan McGarvey, managing director of Marsh's utility practice. "The greenhouse gas issue is as important as the price of oil."
In the meantime, a number of nuclear reactors have, to the chagrin of the antinuclear community, unexpectedly received extensions beyond their 40th anniversaries, the lifetime of a typical operating license. Instead of shutting down, 30 of the nation's 103 reactors have been granted license extensions, 16 others are under review and 22 more have signaled their intention to renew. NRC expects applications from virtually all reactor units.
In August, the president signed a bill extending the Price-Anderson Act, the federal framework for handling public liability claims stemming from potential nuclear accidents. Renewal stalled for three years after the measure was incorporated into the Bush comprehensive energy bill and became mired in unrelated political issues. During this period, only existing reactors came under its provisions. For the next 20 years, it will apply to the next generation of reactors.
Price-Anderson is an insurance program providing funds for potential accident victims. It requires reactor operators to provide evidence of financial protection in an amount equal to the maximum liability insurance available from private sources at reasonable terms. To do that, a pool was created to spread the risk of a small number of reactors over a large base of insurers. That pool, now known as American Nuclear Insurers, acts as a managing agent for its member companies. ANI provides Price-Anderson's requisite primary layer.
Today, ANI writes a primary limit of up to $300 million per insured location. Coincidentally, it was the full-limit $300 million that ANI paid to cover the Three Mile Island property losses.
The act also requires that utility operators participate in a "secondary financial protection" program, also written by ANI, which provides that, in the event of a loss that exceeds the primary layer, participants are retrospectively and proportionately assessable up to a maximum of $100.59 million per reactor, per incident. With 104 reactors in the program, nearly $10.5 billion is available in excess of ANI's primary limit. Beyond that, Congress reviews the situation and takes additional action to protect the health and safety of the public.
Critics say the liability cap is a subsidy for the nuclear industry. Others say there always was a de facto limit in the form of the company's assets. A case in point was the Bhopal, India, disaster in 1984. There was no limit, technically, but Union Carbide paid $470 million to settle claims for 4,000 deaths and 100,000 injuries.
"The fact is unlimited liability does not translate into limitless funds," says ANI's Quattrocchi. Then too, he says, under the secondary protection program, the nuclear industry accepts shared responsibility for accidents in excess of the primary insurance limit of $300 million that occur at a facility owned or operated by a separate and distinct business entity. "It is the Price-Anderson system of checks and balances that makes this possible," he says.
Price-Anderson aside, the nuclear industry and its insurers face other significant issues. Among them:
- Waste Management. Even antinuclear activists acknowledge that the probability of a severe reactor accident is remote, so their focus has shifted to waste management. They say there's no technology to safely handle waste. Nuclear proponents argue that spent-fuel technology has successfully done the job for the past 50 years. They point to their "ultimate solution," Yucca Mountain, Nev. Geologically stable for millions of years, scientists say high-level nuclear waste can be safely stored there for another million years.
"On the negative side, disposal is still a big factor, but the Yucca Mountain project has been going for a long time and is still viable," says McGarvey. "We are talking about very small amounts of high-level waste. All of the spent fuel used in this country since nuclear power generation began could fit on a football field to a depth of just 11 feet. Compared to the waste from other sources of power, that is very little."
- Nuclear Exclusions. Standard nuclear exclusions appear in most personal and commercial lines' property/casualty policies. The reasons are varied. Among them: Insurers channel their maximum available net capacities for the nuclear peril through the pooling system and would be exposed to an undue risk of uncontrolled "accumulations" without the exclusions.
Result: Insurers say they couldn't determine their maximum nuclear exposures, forcing them to significantly reduce their capacity commitments to ANI. The continued viability of the nuclear exclusions is considered critical by most insurers. ANI has just 24 domestic member companies, although they're among the largest carriers in the United States. Question: Should the 1,500 or so other domestic carriers be allowed to continue to exclude the nuclear hazard from their conventional policies? Do they get a free ride? The extent to which this issue is being considered by state regulators is unclear.
- The Anti-Nuclear Lobby. It's strong and it's organized, though some factions within the environmental community have come to somewhat embrace nuclear power as a clean source of energy. Over the years, though, these groups have had a negative effect on the development of nuclear power in the United States, bringing lawsuits to stall development.
- Safety. "Following TMI," says John Quattrocchi, "the industry took a hard look at itself and implemented a program of significant safety upgrades. More than $1 billion dollars was spent retrofitting and re-evaluating. Improvements made following TMI have greatly enhanced the safety of nuclear facilities." As for Chernobyl, he says, there are no reactors of that type in the United States, nor have there ever been. "That kind of accident could not occur using Western technology. Nevertheless, it had an impact."
- Terrorism. ANI strongly supports an extension of the Terrorism Risk Insurance Act beyond its sunset, Dec. 31, 2005. "We believe it's essential there be some sort of government support," says Quattrocchi. "We view terrorism as akin to war, and war is generally excluded under standard insurance policies." He adds, however, that with significant security upgrades since Sept. 11, 2001, U.S. nuclear sites "are probably the best protected industrial facilities in the country."
- Capacity. The maximum limit increased in 2003, from $200 million to $300 million. The trick is to maintain secure and stable quality capacity, which will be there over the years, whether from domestic or foreign sources. Due mainly to mergers and acquisitions, membership in ANI is down from years past.
SAFE, CLEAN, INEXHAUSTIBLE
"The country as a whole recognizes the need for new sources of energy if we're going to continue to be a world economic power," says Quattrocchi.
One thing that will always be needed is political will. "While we have an administration that views energy as critical and views nuclear power as an important part of an energy program, still there are many in Congress that need to be convinced.
"There are a lot of reasons to be hopeful," he adds. "We have a majority in Congress that finally views energy as an important component of our national security.
"The major trends are positive," says Quattrocchi. "Nuclear power is seen more and more as a safe and environmentally friendly source of energy. And we have an energy bill that may spur future development. The stars may be aligned for a nuclear-energy renaissance."
And for a renaissance of nuclear insurance as well.
TOM SLATTERY, a regular contributor, has been a writer and editor on insurance issues for almost 40 years. Writer Gregory Morris contributed to this article.
September 1, 2005
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