ML19270G933
| ML19270G933 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 06/14/1979 |
| From: | Quattrocchi J AMERICAN NUCLEAR INSURERS |
| To: | Saltzman J Office of Nuclear Reactor Regulation |
| References | |
| NUDOCS 7906210206 | |
| Download: ML19270G933 (7) | |
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June 14,1979 Mr. Jerome Saltzman, Deputy Chief Office of Antitrust & Indemnity Directorate of Licensing U.S. Nuclear Regulatory Commission Washington, D.C. 20555 Homeowner's Exclusion
Dear Jerry:
Here is a copy of the statement made by Anbrose Kelly at a recent hearing of the National Association of Insurance Commissioners.
My understanding is that the report was very well received. However, one of the Commissioners apparently suggested that the insurance industry undertake an actuarial study of the costs involved in provid-ing the homeowner's coverage. This suggestion was to be considered at a later time and I'm not sure where it stands, y truly yours,
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X John L. Quattrocchi Supervising Underwriter 2239 103 JLQ/dh Enc.
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,s REPORT OF INDUSTRY ADVISORY COMMITTEE ON NUCLEAR LOSSES This report is presented on behalf of the Industry Advisory Committee.
I am Ambrose B. Kelly and I have had a long association with the dfforts of the insurance business to provide adequate protection for the public from any losses which may arise. as a result of the use of nuclear energy for other than military purposes.
As noted in the Atomic Energy Commission's Study of the Price-Anderson Act of February 15, 1965:
"The Congress had two principle objectives in adopting the indemnity provisions of the Price-Anderson Act; namely; (1) to assure the availability of funds to satisfy public liability claims in the event of a catastrophic nuclear accident; and (2) to remove the deterrent to industrial activity in atomic energy presented by the threat of enormous liability claims if such an accident were to occur."
The goal given to the insurance industry was to provide as much insurance as possible from private sources in order to reduce the extent of the government's obligation to provi,de indemnity. This goal has remained of top concern to the government', the nuclear industry and the insurance industry over the last 22 years.
Given the dual objectives of protecting the public and removing the deterrent to industrial activity, the insurance industry formed pools and slicited maximum subscriptions from virtually every domestic insurer as well as frcm reinsurers around the world. The amount of capacity originally amassed ($120 million, split equally between liability and physical damage coverage) was unheard of at the time.
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And today, the total of $160 million in coverage for liability and $300 million for physical damage continues to represent close to the technical maximum avail-able from private insurance sources for a single industrial loss, especially when the relatively mo, dest size of the nuclear insurance premium volume is considered. Also when one considers that the nuclear industry itself currently supplements this with $335,000,000 in retrospective liability contributions on an excess basis.
To make this underlying private insurance capacity continuously available for a sound financial protection program has required an unusual arrangement under which coverage for the nuclear hazard associated with the generation of electric power must be concentrated in the policies issued by the pools and reinsured around the world.
To avoid multiple exposures under dozens, hundreds or even thousands of conventional policies and reinsurance treaties, an exclusion of nuclear losses was introduced into all reinsurance contracts and conventional liability and property policies in 1957 and continues to remain necessary today. The commitment of all omestic insurers to the capacity of the nuclear insurance pools is carried net, without reinsurance.
For many, if not most, domestic insurers this constitutes their largest net exposure to loss from one occurrence.
Questions have often been raised from time to time during the last twenty years whether the nuclear exclusions are necessary or whether more capacity could be made available to property owners in the vicinity of nuclear power reactors if individual insurance companies were_to cut down on their subscriptions to the pools or stop contributing altogether.
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. The answer seems crystal clear to those who have been involved in,the nuclear program from the beginning. The capacity would not be enhanced but rather decreased.
If protection were to be made available, the total of administrative expenses and risk prem.iums for providing it through thousands of policies would be far greater than the cost of the protection afforded today. The burden would fall directly on the individual policyholders. Today it is borne by the public utilities and spread to all of the customers of their generating systems, not merely those located near their reactors.
Not the least of the technical problems which would make it difficult if not impossible to amass anything approaching capacity equivalent to that provided by the present system is that only those property owners living near nuclear reactors would willingly buy insurance. This would make it hard to obtain enough premium volume and spread of risk to assure a willing market.
If a compulsory market were somehow forced on the insurance industry and its customers, the industry's ability to provide both bodily injury and property protection for the public would likely be seriously diminished, frustrating the principal objective of the Congress in establishinn the Price-Anderson orocran.
There are some who have suggested that the present limitation on liability together with the amount of private financial protection and government indemnity are inadequate to provide the public with sufficient protection against the financial consequences of a more serious nuclear incident than occurred at Three Mile Island. They have suggested the establishment of special Federal reinsurance programs to back up increased limits of liability and property protection.
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. When originally the Price-Anderson Act was enacted the Federal government made $500 million available in government indemnification.
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Today the amount has been reduced to $65 million.
If the Congress believes that the present Price-Anderson program is inadequate at the upper levels of protection, we think that a more feasible alternative to mandating coverage under property policies and supplementing private coverage with Federal reinsurance would be simply to increase the amount of the government indemnification available under the Nuclear Regulatory Commission's indemnity agreements with its licensees and contractors.
Attached hereto you will find a list of the stock and mutual insurance companies in the United States who are currently members of the two pools. We are very proud of the confidence which they have shown in the nuclear insurance program and they represent the bulk of the American property and casualty insurance industry.
This is an excellent time to discuss this whole problem since the Three Mile Island Yoss is fresh in your memory. A nuclear core was uncovered in an accident at a major power plant. The Governor of Pennsylvania recommended that people living within five miles of the reactor and in whose families there were pre-school children or pregnant women should leave their homes. How did the machinery established by the insurance companies so many years ago function in this emergency?
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As soon as word of the accident reached the offices of the: nuclear pools, they activated their emergency claim procedure. Within hours there was an office open in Harrisburg to which people who had left their homes could come for expense money covering the period when they expected that they would have to seek shelter elsewhere. Up to this time we have paid out over a million dollars in such expenses quickly and efficiently.
I am glad to note that Commissioner Bartel and Deputy Commissioner Simpson of Pennsylvania personally came to our office in Harrisburg to observe it functioning and both pitched in and gave us very valuable assistance. l.et me also pay tribute to the honesty of the Pennsylvania citizens who came to us for financial assistance. We pointed out that these funds were to cover their actual expenses.
I am happy to report that in over 30 cases people voluntarily came to our office after the emergency was over and returned to us the money that was not needed.
if It should be noted that/the people living near the TMI reactor had had homeowners insurance without a nuclear exclusion, they would have received nothing under their policies. There was no actual contamination of their homes and there is no provision in the homeowners policy for such expense when there is no physical dama'ge.
Stated simply, the machinery which had been established has functioned as it was intended. All of those people who feel that they may have either suffered a personal injury which will be manifested in the future or that they have suffered property loss in any other way, are perfectly free to turn to the courts for the adjudication of their claims. A number of class action suits against the Metropolitan Edison Company and many of its suppliers for alleged damages resulting from the incident have already been filed.
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In the event it is established that any of these individuals have a proper claim for a proven damage they will, of course, be honored hy the nuclear pcols. There is no current indication that the amount of such validated claims will exhaust the Price-Anderson protection.
In conclusion, it is still the opinion of the insurance industry that under Price-Andt son the blueprint written twenty-two years ago represents the best method of providing insurance protection to the American public against nuclear hazards. We are providing indemnity for those who suffer damage as the result of a nuclear accident. All of this is being accomplished without asking the American public to pay any additional premiums for supplemental insurance.
It is our considered opinion, therefore, that as long as the public policy of the United States continues to regard nuclear power as an important answer to our energy needs, we should build upon the present insurance indemnity program rather than dismantle it.
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