Publication Laka-library:
Study Calculating a risk-appropriate insurance premium to cover third-party liability risks that result from operation of nuclear power plants

AuthorVersicherungsforen Leipzig, B.Günther
DateApril 2011

From the publication:


Calculating a risk-appropriate insurance premium to cover third-party
 liability risks that result from operation of nuclear power plants

    Commissioned by the
  German Renewable Energy Federation (BEE)

   Leipzig, 1 April 2011
Benjamin Günther
Torsten Karau
Eva-Maria Kastner
Dr. Walter Warmuth


The nuclear accident at Japan’s Fukushima Nuclear Power Plant in March 2011 
and the debate surrounding the life extension of Germany’s nuclear power plants 
are the two main factors that have reignited the debate over the "residual 
risks" associated with this form of energy production.
One of the questions raised during this discussion concerns adequate financial 
security for the licensees 1 of these power plants in the event of a nuclear 
disaster. Until now the licensees have been subject to mandatory financial 
coverage of €2.5 billion for potential compensation payments that result from 
damage claims following incidents or accidents at a nuclear power plant. They 
are also entitled to up to €300 million in public funds from the EU. 

The present study calculates the hypothetical premium for liability insurance 
that would cover a claim resulting from a nuclear disaster linked to an incident 
or accident at a nuclear power plant. It is based on previously published studies 
of the likelihood and the and the potential amount of damage of such events. In 
addition, the authors provide their own assumptions and resulting assessments for 
these two risk-determining factors in the calculations. 

These calculations yield a mean total payable sum insured (limit of liability) of 
around €6,090 billion in the event of a nuclear disaster. Depending on the underlying 
probability of occurrence of such a claim, the annual premium would range between 
€0.01 and €305.83. However, as it would not be realistic to provide the amount insured
 over 1,000 years, the study presumes other payout periods. For instance, the study 
calculates that paying out the total amount insured over a period of 100 years would 
entail an annual insurance premium of €19.5 billion for every insured nuclear power 
plant over the entire period. Such a period cannot be considered realistic given the 
remaining lifespans of German nuclear power plants and the normal plant lifespan of 25 
to 40 years. Shorter policies, however, lead to an exponential jump in annual premiums. 

If consumers of electricity generated by nuclear power were to carry the cost of 
remedying the damage caused by such an event (internalisation of external costs), the 
apportionment of costs (based on the insurance premium) would require a net price 
increase for atomic energy of €0.139 to €2.36 per kWh for a duration of 100 years, 
based on a payout period of 100 years. With a payout period of ten years this net price 
increase would range from €3.96 to €67.3 per kWh.

The calculations and scenarios presented, which are based on many assumptions, show that 
the funds currently available for protecting licensees against the risks connected with a 
nuclear power plant would certainly only cover a small portion of the compensation 
payments due in the event of a nuclear disaster. The remaining costs over and above that 
would be carried by the state and/or the public.