Extract from. Études et Dossiers No th Joint Seminar of the European Association of Law and Economics and The Geneva Association

Transcription

1 International Association for the Study of Insurance Economics Études et Dossiers Extract from Études et Dossiers No th Joint Seminar of the European Association of Law and Economics and The Geneva Association Lecce, June 2007 This document is free to download from The Geneva Association website, September 2007 Working Paper Series of The Geneva Association Association Internationale pour l'etude de l'economie de l'assurance The Geneva Association - General Secretariat - 53, route de Malagnou - CH-1208 Geneva Tel.: Fax: secretariat@genevaassociation.org -

2 The Geneva Association Working Paper Series Études et Dossiers appear at irregular intervals about times per year. Distribution is limited. The Études et Dossiers are the working paper series of The Geneva Association. These documents present intermediary or final results of conference proceedings, special reports and research done by The Geneva Association. Where they contain work in progress or summaries of conference presentations, the material must not be cited without the express consent of the author in question. This document is free to download from The Geneva Association website, please visit: Layout & Distribution: Valéria Kozakova The Geneva Association - Association Internationale pour l'etude de l'economie de l'assurance

3 The US versus the International Nuclear Liability and Insurance System: An Economic Analysis Michael G. Faure and Tom Vanden Borre Overview 1) Introduction 2) The international nuclear compensation scheme 3) The US system of nuclear liability 4) Nuclear insurance 5) Economic analysis 6) Is American system a model? 7) Conclusions 4-1

4 Two treaty regimes Nuclear Energy Agency (NEA): Convention on Third Party Liability in the Field of Nuclear Energy of 29 July 1960 Brussels Supplementary Convention to the Paris Convention on Third Party Liability in the Field of Nuclear Energy of 31 January 1963 International Atomic Energy Agency (IAEA): Vienna Convention on Civil Liability for Nuclear Damage of 21 May 1963 Conventions have same principles strict liability of nuclear operator all liability is channelled to nuclear operator liability is limited: in amount: 15 million SDR (18 million ) in time: > 10 years compulsory insurance coverage up to liability limit ( congruence principle ) only one court per country is competent 4-2

5 Channelling of liability Article 6 PC: The right to compensation for damage caused by a nuclear incident may only be exercised against an operator ( ) No other person shall be liable for damage caused by a nuclear incident two consequences: operator can only be held liable according to the provisions of Paris Convention operator is ONLY person liable: no actions against any other person = exclusive liability Also public funding Brussels Supplementary Convention: three tier system: liability of nuclear operator: at least 5 million SDRs (6 million ) [Installation State: 170 million SDRs (205 million )] public funds of Contracting Parties: 125 million SDRs (150 million ) TOTAL: 300 million SDRs (361 million ) 4-3

6 Chernobyl initiated revision September 21 st, 1988: Joint Protocol September 12 th, 1997: Protocol of Vienna Convention Convention on Supplementary Compensation for Nuclear Damage February,12 th, 2004 : Protocol to Paris Convention Protocol to Brussels Supplementary Convention Protocol to Paris Convention broader definition of nuclear damage : economic loss; costs of preventive measures and of reinstatement of impaired environment liability amount: 700 million change in prescription periods: 30 years for personal injury claims 10 years for other types of nuclear damage 4-4

7 Also change in public funding Brussels Supplementary Convention: second tier: 500 million third tier: 300 million TOTAL: 1.5 billion Also public funding in CSC independent legal instrument: only requirement is membership of Nuclear Safety Convention (if nuclear installation) aim: supplement compensation provided for: Paris or Vienna Convention national nuclear law having same principles of conventions provides availability of 600 million SDR: 300 million SDR: nuclear operator and/or Installation State 300 million SDR: international public fund financed by all Contracting Parties half of second tier: transboundary damage 4-5

8 Overview 1) Introduction 2) The international nuclear compensation scheme 3) The US system of nuclear liability 4) Nuclear insurance 5) Economic analysis 6) Is American system a model? 7) Conclusions The early years Price-Anderson Act 1957 aim: make sure that participation of private companies is not hindered by potential huge liability claims guarantee availability of sufficient compensation for victims how? first tier: 60 million USD liability insurance second tier: 500 million USD government indemnity 4-6

9 Important changes over the years 1975: introduction of retrospective premium in second tier to be paid by every operator NRC: 5 million dollar result: no government intervention anymore since 1982 (amount unchanged) later: increase of both first and second layer 2005: 300 million USD (liability insurance) 100 million USD/reactor (retrospective premium) with max 10 million a year thus totalling 10,6 billion dollar (103 NPP) Similar principles extra-ordinary nuclear occurrence (ENO) to be determined by NRC leads to waiver of defences comparable to strict liability liability is limited coverage applicable to any person indemnified; i.e. omnibus coverage (economic channelling) one court is competent 4-7

10 Important new development US Senate adopted an Act to implement CSC in September 2006 aim: establish a funding mechanism under the Price-Anderson Act for the US contribution to the international nuclear liability compensation system requires the nuclear suppliers to participate in a retrospective risk pooling program to cover the costs of the US contribution pursuant to CSC Nuclear insurance is specific nuclear insurance pools capacity of the pool = contributions of all its members one pool per country provide TPL and first party insurance (damage to installations) 4-8

11 Nuclear captives in US and Europe in US: captives in early seventies: Nuclear Electric Insurance limited (NEIL) and Nuclear Insurance Limited (NML) NEIL only offers first party insurance in Europe: European Mutual Association for Nuclear Insurance (EMANI) European Liability Insurance for the Nuclear Industry (ELINI) Overview 1) Introduction 2) The international nuclear compensation scheme 3) The US system of nuclear liability 4) Nuclear insurance 5) Economic analysis 6) Is American system a model? 7) Conclusions 4-9

12 General principles of L&E legal regime must give incentive for full internalisation of costs safety regulation BUT also liability rules: nuclear operator should pay all costs of his activity no limitation of liability no government intervention Strict liability and compulsory insurance strict liability: in case of unilateral accident: injurer must not only follow an efficient level of care; also adopt efficient activity level important condition: compensation to be paid = actual damage insolvency problem strong argument in favour of compulsory insurance 4-10

13 Economic channelling is better legal channelling: excludes liability of parties having an influence on accident risk does not really limit administrative costs omnibus-coverage of PA has same results better that victims can sue different persons US Senate 2006: CSC-Act provides for contribution from suppliers, as far as accidents outside US are concerned The internalisation issue 1957 PA: clear subsidy to nuclear industry BUT important changes thanks to revision: no government intervention anymore available amount really increased however total compensation available quite substantive, but still insufficient in some cases question: does system of retrospective premium (which is collective system) provide for incentives? 4-11

14 Risk differentiation individual liability: covered by ANI, who operates classic risk differentiation retrospective premium: linked to nuclear power plants no ex ante amounts need to be paid L&E literature already indicated that system of mutual risk sharing possible if no ex ante judgment is difficult or impossible strong incentive for mutual monitoring CSC: retrospective system will apply to suppliers Advantages US system dynamic second tier consists of private funds (<> international system: public funds) with retrospective premiums: nuclear operators work closely together, with mutual monitoring various parties contributing to nuclear risk are exposed to compensation 4-12

15 Compared to NEA system first tier will be relatively high (eventually) second and third tier: public funds not risk related = pure subsidy to nuclear industry could be met by charging operator, but should: be market reflective take into account risk differentiation supplier is not responsible for his risk PA-model in Europe needed phase-out all public funding in international regimes collective private tier instead of collective public tier 135 NPP in 9 Western European countries each 10 million = 1.35 billion important: European NRC 4-13

16 Nuclear liability is hot topic today NEA-countries: try to implement Protocol to Paris Convention January 10th, 2007: European Commission launched its energy package: nuclear energy is one way for limiting CO 2 -emissions one of the cheapest low carbon energy produced in EU ambitious targets already endorsed at Spring Council 20% renewables by 2020 subsidy to nuclear industry leads to: overconsumption distorts market Conclusions US and international nuclear compensation system initially almost identical still today important similarities, even if US (so far) not member of any of the conventions major difference: (much) higher compensation no legal channelling no public funding from interest group perspective: US suppliers well protected European nuclear operators well protected major change of international system needed 4-14