Nuclear insurance on the rise but complexities remain

The nuclear energy market could be an area of increased interest for insurers, given the number of nuclear reactors being developed to help with the energy transition. However, commercial insurers and reinsurers may remain reticent to step into a market dominated by nuclear pools and mutuals until they get a clearer idea of what type of new reactor will become the dominant model. This was the view expressed by Stephen Woods, managing director of Nuclear Electric Insurance Ltd’s foreign subsidiary NEIL Overseas, who was speaking at the International Association of Engineering Insurers’ annual conference, recently held in Dublin. There has been renewed interest in the nuclear power sector of late. Nuclear power can be a controversial subject. There are concerns related to radioactive release, storage of spent nuclear fuel and notable events like Three Mile Island (1979), Chernobyl (1986) and Fukushima (2011). However, there has been rising interest in nuclear as a low-carbon power-generation source, particularly during the last three to five years. It can also compliment renewable energy sources such as wind and solar power, which can fluctuate to some degree depending on conditions and are not likely to fully match the demands of national grids in the immediate future. Nuclear offers stable low-carbon baseload power. The issue of energy security has been highlighted by the war in Ukraine, which has in turn exposed the reliance on Russian gas and oil. This, along with the focus on low-carbon power-generation sources, has contributed to increased support for nuclear, said Woods. Support for nuclear energy has even risen in Germany, a fervent anti-nuclear country, where the last remaining nuclear power stations have been kept in operation just in case they are needed in the future. The EU’s Taxonomy, part of its Green Action Plan, is supportive of nuclear energy as a transitional power source. There are also funding supports available in the US through the Infrastructure Investment and Jobs Act. There are more than 30 nuclear power projects currently underway worldwide, and 20 of those are in the US and Canada. However, while the increased demand for nuclear will see more activity for insurers, there are still complexities to deal with, not least the rise of advanced nuclear reactors. The traditional large nuclear units have significant capital budget. The new generation of nuclear plants are designed to be smaller and more efficient, with lower capital requirements. The challenge for insurers, said Woods, is that many different designs are being considered. It will not be clear which designs will be the most commercially viable until demonstration reactors are built and operated. In essence, there are four main designs – water-cooled, gas-cooled, metal and molten salt. Woods said some standard large nuclear power plants are shutting down or have been decommissioned, but he thinks others will have their life extended and we will see some new builds using advanced nuclear reactor designs. “The operational limits purchased may change as the advanced designs are smaller units than those we typically insure,” said Woods. “The key for all nuclear insurers will be to participate in the builders’ risks and operational policies for these demonstration units.” “This will allow our engineers and underwriters to understand the risks first-hand and relate them to those of the established designs, and determine how to properly rate them and what policy implications they may have,” said Woods. The majority of the nuclear property market worldwide is likely covered by the nuclear pooling system. In the US, Belgium and Spain, it is covered by NEIL, said Woods. “But as the SMR/micro-reactor technology is demonstrated to be commercially viable, and the nuclear risk is better understood by commercial carriers, assuming that the limits purchased for these new units are lower than the standard units given their smaller size and footprint, we could see some new entrants into the market. But I would expect that the initial units will be covered by a combination of pools and mutual,” he said.

Nuclear insurance on the rise but complexities remain

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