Nonlife insurers are leaning toward ending liability coverage for the Fukushima No. 1 nuclear power plant, which would complicate compensation payments if another emergency unfolds and render the plant's reactors "illegal."
Nonlife insurers are leaning toward ending liability coverage for the Fukushima No. 1 nuclear power plant, which would complicate compensation payments if another emergency unfolds and render the plant's reactors "illegal."
"The insurance contracts are targeted at nuclear reactors that are operating normally and are not leaking out radioactive substances," said a senior official at a major nonlife insurer. "It will be difficult to renew the contract under the current circumstances."
The contract with Tokyo Electric Power Co. for the stricken Fukushima No. 1 plant expires in January.
Private contracts by nonlife insurers are designed to cover compensation for nuclear accidents that are not caused by natural disasters. If the contract is discontinued, the Fukushima facility will become Japan's first nuclear power plant to go uninsured against such accidents.
The Law on Compensation for Nuclear Damage defines two frameworks to help operators of nuclear facilities pay compensation to people affected by accidents at those sites.
One framework, which provides government compensation, applies to accidents caused by earthquakes, tsunami and other natural disasters. The Fukushima No. 1 plant crisis, triggered by the March 11 Great East Japan Earthquake and tsunami, falls under this category.
The second framework, involving private insurance, applies to general accidents that are not caused by natural disasters. This framework was used after the criticality accident in 1999 at JCO Co.'s nuclear fuel processing plant in Tokai, Ibaraki Prefecture, which killed two workers.
In both frameworks, payments can cover up to 120 billion yen ($1.6 billion) per nuclear plant. Electric power companies, in principle, pay the remainder of the burden.
For the Fukushima accident, the maximum limit is well short of the estimated trillions of yen needed to cover all damage compensation claims. The government on Sept. 12 set up the Nuclear Damage Compensation Facilitation Corp., which will extend loans to TEPCO to help it pay victims of the accident.
Private insurance contracts are undertaken by the Japan Atomic Energy Insurance Pool, set up by 23 nonlife insurers, and are renewed every year. The Insurance Pool is expected to decide by the end of this year on whether it will renew the contract for the Fukushima No. 1 plant.
Nonlife insurers are already showing a negative stance toward renewing the contract because the abnormal state of the reactors has heightened the risk of future accidents caused by systems glitches or human error.
The Insurance Pool has concluded reinsurance contracts with overseas insurers, which would cover part of the insurance money it would have to pay. Because of the latest accident, however, the reinsurers may no longer want to continue these policies, sources said.
If the Fukushima plant is not covered by liability insurance, TEPCO would face enormous difficulties in compensating people affected by another accident caused by mistakes or glitches. In that case, TEPCO would likely have to increase electricity fees.
TEPCO plans to decommission the Fukushima No. 1 plant's No. 1 through No. 4 reactors, but that process is expected to take decades to complete. No decision has been made on the No. 5 and No. 6 reactors, whose operations remain suspended.
The Law on Compensation for Nuclear Damage states that a nuclear facility operator must not operate reactors unless it has secured a means for nuclear damage compensation. The reactors at the Fukushima No. 1 plant, if uninsured, will become "illegal reactors" unless they are decommissioned.
To avoid such a scenario, TEPCO has to set aside a deposit equal to the maximum amount of insurance money or the government must create a new framework for government compensation for general accidents. The government has not started discussions on this issue.
A nonlife insurance industry source pointed out the flaws in the damage compensation framework.
"The Law on Compensation for Nuclear Damage does not envisage the case where a nuclear plant hit by an accident, like Fukushima No. 1, remains in existence for decades," the source said.