June 2017

Updating Wordings for the Nuclear Age

The LMA Wordings Forum has reconvened its Nuclear Working Party to draft a ‘cold zone variant’ of its model exclusion wording, which would make it easier for underwriters to cover construction projects in the nuclear sector.

Much of the London market’s ‘standard’ exclusionary language dates back to the 1950s, when Lloyd’s was asked to reinsure the first nuclear insurance pools.  These were being formed to cover the emerging civil nuclear energy programmes and to deal with the Vienna Convention on Civil Liability for Nuclear Damage, which made the owners and operators of nuclear facilities strictly liable, requiring them to purchase insurance.

The emergence of nuclear pools – there are now some 26 worldwide according to Nuclear Risk Insurers Ltd – created the need for nuclear exclusions in primary property and casualty policies. However, there have been significant technical developments in the nuclear industry since these exclusions were first drafted in the 1950s.

Following the 2011 Tōhoku earthquake and tsunami, which triggered a major incident at the Fukushima nuclear plant, the LMA Wordings Forum undertook a project to review and update standard nuclear exclusionary language being used in the London market, to reflect the changes in nuclear technology, in a move aimed at making wordings more appropriate for the nuclear industry of the future. This resulted in the publication of a suite of reinsurance (treaty) exclusions by the LMA in 2012.

However, as a specialist market, we need to ensure that our model wordings continue to allow underwriters to provide the cover needed, with the expected increase in interest in nuclear power over the coming years. 
The nuclear industry has had a challenging few years. Following the Fukushima incident, many construction projects were delayed or shelved whilst, as recently as February 2017, a fire at the Flamanville nuclear plant in France caused a major shutdown, albeit the fire in the turbine hall was outside the ‘nuclear zones’ of the power station.

But, despite concerns, many believe that the nuclear industry has an important role to play in future power generation as the world looks to reduce carbon emissions and end its reliance on fossil fuels, which has prompted the recent renaissance in the construction of nuclear power stations.  

Last year saw a significant number of new reactors commissioned, including the UK government’s approval for a new reactor at Hinkley Point. The UK currently has 15 reactors generating about 21% of its electricity, but almost half of this capacity is to be retired by 2025 and will need replacing. Newly commissioned nuclear power stations will require insurance during the construction phase, for the ancillary buildings, ‘cold zones’ and the ‘high radioactivity zone’, long before any radioactive material is actually introduced to the site.

The proposed addition to the LMA’s suite of model nuclear clauses is intended to make it easier for London market insurers to cover such construction projects, whilst there are also plans to make the current market primary policy exclusions for nuclear more ‘user-friendly’. 

Our intention is to future proof the market’s nuclear exclusions and to give Lloyd’s underwriters more options to underwrite nuclear installations under construction.



 

 

Written by


Alison Colver
Head of Contract Wordings

Nuclear Facts

  • According to the World Nuclear Industry Status Report (WNISR), some 754 nuclear reactors have been under construction in 41 countries between 1951 and 2017, although 90 of these were abandoned. 
  • As of January 2017, 55 reactors were under construction in 13 countries, with the majority being built in Asia – China is home to over a third of the world’s nuclear construction sites.
  • According to WNISR there were ten nuclear reactor start-ups in 2016, five of which were in China and one each in India, Pakistan, Russia, South Korea and the US. 

This article was previously published in the 2017 Spring/Summer edition of Viewpoint


 
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