Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 10 - Evidence
OTTAWA, Thursday, May 11, 2000
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 9:00 a.m. to examine issues relating to energy, the environment and natural resources generally in Canada (Nuclear Reactors Safety).
Senator Mira Spivak (Chairman) in the Chair.
[English]
The Chairman: Welcome, Mr. Hammond and Mr. Murphy. We are examining the issues relating to nuclear safety in Canada. We are interested in hearing what you have to say, because the issue of insurance is one that has arisen in our previous hearings.
Please proceed with your presentation.
Mr. Dermot Murphy, Manager, Nuclear Insurance Association of Canada: Honourable senators, it is a pleasure for the Nuclear Insurance Association of Canada, also known as NIAC, to address your committee today. The Nuclear Insurance Association of Canada is an insurance pooling arrangement.
With me today is Mr. Steve Hammond, who has been the chairman of our association since 1996.
We would like to begin our address by stating that NIAC is the only approved insurer of nuclear liability in Canada with respect to the requirements under the Nuclear Liability Act, or NLA, and we have been providing this coverage since June 1958.
Our membership is comprised of the largest property and casualty insurers and reinsurers in Canada, and we are committed to providing insurance coverage for insurable risks to the nuclear industry, required by statute or otherwise.
As prudent insurers, NIAC performs independent nuclear engineering inspections and provides risk management services, which may include recommendations for improvement. Such inspections and services are provided to our insurers on a regular basis, and we have frequent contact with the large utilities in this regard.
These services deliver multiple benefits in our opinion, including benefits to the public at large, as we act as a second watchdog to ensure that the operators are operating safely. We say "second watchdog," as the Atomic Energy Control Board bears this responsibility; however, our mandate expands to physical loss prevention on site, in addition to loss of life and public property.
We deliver benefits to the insured entities by providing an independent review of their operations and safety systems, in an effort to achieve continuous improvement and benefits to our members. Our belief is that a nuclear incident could be linked to or caused by improper operations or inadequate safety systems.
We have been asked to comment on the possible consequences of a lack of nuclear liability legislation in Canada. Should such a situation arise, Canadians would lose two essential measures of protection that are afforded by the channelling aspect in nuclear liability legislation throughout the world. The first essential measure of protection that would be lost is that of absolute liability. Under traditional jurisprudence, parties alleging to have caused damage or injury have to be identified, and it must be proven that they have been negligent before courts will award damage to the aggrieved parties.
Under the NLA, liability is channelled exclusively to the operator of the nuclear installation. The liability is absolute. In other words, the operator is held liable irrespective of fault, and a clear-cut path of compensation is provided to the victims. In the unlikely event of a nuclear incident, liability is established forthwith and the compensation process can begin immediately, without recourse to the courts.
Second, the operators would lose an essential measure of protection. Without the provision of channelling, it is possible that contractors and suppliers would decline to work and provide equipment and services to the industry if they could not, as is at present, protect themselves by having all liability channelled to the nuclear operator.
In the absence of the channelling concept, insurers would be reticent, if not unable, to provide the necessary coverage where it would be most needed. Operators would find it difficult, if not impossible, to have outside contractors perform work at their facilities, as they would not be able to provide the necessary assurances and risk transfer mechanisms, now in place, that allow these people to provide those services.
In other words, because of the channelling provision under the current act, the operators typically provide "hold harmless" provisions within their contracts, with respect to the nuclear energy hazard. This transfers the risk to the operator contractually, as well as by statute; therefore, contractors are free of this potential liability and can thus perform their duties without fear of financial consequences.
This removal of liability does not, however, absolve these suppliers from conducting their work on a best-practices basis. At the risk of being seen as blind supporters of the nuclear industry, we would like to make some statements. We would stress, however, that our view of the nuclear industry is one that is impartial, fair, and considerate of all the risks and opportunities presented by this hazard.
It would be seen as reckless and totally irresponsible for a government to even remotely consider revoking such legislation, that brings stability to business operations and security to the general public. Some may see the NLA as an unfair advantage to the nuclear industry, but we would submit to you that, given the increasing need for electricity over the recent past, the need to reduce carbon emissions to meet the Kyoto Protocol, and the absence of any large-scale, viable alternative method to produce the levels of electricity required, the federal government should recognize that the greater good of the general public and Canadian society at large must take precedence over all other considerations or arguments surrounding the nuclear liability legislation discussion. To do any less would put our children, our economy, and our credibility as a nation in peril.
We seek a fair and equitable approach to the coverage of the nuclear peril in Canada -- one that is fair to the operators, by providing the required risk transfer mechanism to cover their financial obligations under nuclear legislation; fair to the insurers, by obtaining for them a return on their investment of capacity and for the opportunity-cost expended for supporting the pooling system; and fair to the public at large, by keeping a watchful eye on the operators and being fully prepared for a nuclear incident, which we hope will never happen in this country.
Senator Kenny: Welcome, sir, and thank you for coming to appear before us. Is this a good business?
Mr. Murphy: Is this a good business?
Senator Kenny: Yes. Are you in a good business?
Mr. Murphy: I would say yes, senator.
Senator Kenny: Profitable?
Mr. Murphy: Yes, senator.
Senator Kenny: Do you have trouble finding underwriters to join?
Mr. Murphy: At the present time, no, we have an adequate capacity. If, as expected, the limits of liability, which are at $75 million at present under NLA provisions, are increased, it is likely that we will seek additional capacity. We have done some preliminary investigation in that regard and, yes, we will have the capacity available. The Canadian pool is partnered by the British nuclear pool and the U.S. nuclear pool of insurers. With the threefold combined capacities, we will be able to provide the required limits of liability.
Senator Kenny: Is that amount $75 million?
Mr. Murphy: That is correct.
Senator Kenny: I used to carry $1 million of liability on my car. My agent came to me a while ago and said that he thought I was underinsured, given the nature of society today. What do you think about the $75 million?
Mr. Murphy: I will refer to the brief that we have submitted. In this regard, I will quote a brief comparison of limits in other jurisdictions and also demonstrate that the current Canadian limit must be amended. It should be noted that the table that is included in the brief compares limits of liability only in equivalent Canadian dollars. Amounts from the brief show that, in the U.K., the limit is approximately $300 million, and in the U.S., the first tier is approximately $300 million. They have a much larger second tier. Under the Paris convention, the limit recommended was approximately $600 million.
Senator Kenny: Why are we such pikers?
Mr. Murphy: The limits of liability have not changed since the act was proclaimed in 1958. I was not involved personally at the time, but there was no allowance made for an inflation factor to be included.
Senator Kenny: Well, that has not really answered my question.
Mr. Murphy: Could you repeat the question, senator? I missed it.
Senator Kenny: Why do we lag so far behind and have such a low limit? You can go through $75 million pretty quickly these days. Why do you think that Canada has such a small limit?
Mr. Murphy: The reason, I expect, senator, is that there have been no changes made to the Nuclear Liability Act provisions.
Senator Kenny: I understand that, but why do you think there have been no changes?
Mr. Steven Hammond, Chairman, Nuclear Insurance Association of Canada: Senator, if I may comment, this is really something that is put forward by the government. I guess we can answer in another way: if it is deemed that a higher limit is preferable, then certainly the insurance industry, in respect of the pooling arrangements, could supply additional capacity.
Senator Kenny: The example I gave a moment ago indicated that my agent, not I, recommended more insurance on my car. My agent came to me and said, "I think you need more insurance." He considered that as part of his role in making sure that I slept well at night. What is your role in helping us sleep well at night?
Mr. Hammond: I think that my manager made the point by making the comparisons to the other countries in the world where higher limits are available. That is, perhaps, something that should be considered.
Senator Kenny: How do you calculate the risk?
The Chairman: Yes. How do you assess the risk?
Mr. Murphy: Before I answer that, senator, we have made recommendations to Natural Resources Canada, in Ottawa, that the limits be increased. Over the period of the last 18 to 24 months, Natural Resources Canada has been in dialogue with all of the stakeholders, ourselves included, and I feel confident in saying that recommendations will be tabled in the not too distant future, that will dramatically increase the $75 million limit.
Senator Kenny: Good news is coming soon. Is that what you are saying?
Mr. Murphy: Exactly. In our brief we do cover the assessment of nuclear risk. The precise assessment of the nuclear energy hazard is highly theoretical in nature, due to the near impossibility of establishing accurate estimates of frequency and severity in the absence of statistical data or previous experience. Because of the lack of actuarial analysis for this class of business, to provide a scientific basis for premium rating and projected loss controlled costs, in the event of a nuclear incident, insurers instead opted for providing coverage under the necessary pooling arrangements. The factors that are considered in assessing the nuclear risk are the type of reactor, its use, its size, its location, and the containment that is available.
It is a very nebulous area. There is no empirical data available, as there is for auto insurance, home owner insurance or life insurance.
Senator Kenny: You are telling us, if I translate correctly, that this is too complicated for us to understand in the next hour or so?
Mr. Murphy: I do not know. I am not an actuary of insurance studies. I am not quite sure if I have the ability to explain that within the time allotted, senator.
Senator Kenny: It seems to me that the limit is remarkably low and should be significantly higher. You, the insurance people, do not have the capacity to predict risk by any of the reasonable ways by which you might predict risk in other insurance ventures, where incidents of failure happen regularly and, therefore, you can measure the probability of their happening again at some point in the future.
It just seems to me that, if we experienced a serious problem, there could be absolutely horrendous damages involved. Perhaps there should be no cap on it. We are talking about moving into a different game, where perhaps the insurers may get a little uncomfortable. At what point do you get uncomfortable? Do you mind if there is no cap? Is that okay with you?
Mr. Murphy: To have absolutely no cap involved in the terms of the limit of liability could, potentially, cause severe financial strain on the insurance companies that provide that capacity. They, obviously, have to manage their exposures. In fact, they do so as prescribed by the financial regulations. Hence, the advent of the pooling mechanism that spreads the risk around the world through the various pools, which are comprised, in our case, of 27 insurance companies. Unlimited liability would, in my opinion, be difficult to place in the insurance market around the world.
Senator Kenny: Yet, with a very high cap, we will see rates going up very high. Is this a Crown risk at the end of the day? Once we start getting into realistic numbers about the damage involved, if something does go wrong in a plant, are we not getting into numbers that are beyond the capacity of the insurance industry?
Mr. Murphy: In theoretical terms, that is true, senator.
Senator Kenny: Therefore, it would be a good idea for us to stop paying premiums now, and have the government take it over?
Mr. Murphy: I would not say that, senator, but I note your point.
Mr. Hammond: If I may comment, there are a number of ways to approach this. Certainly, the point made of the astronomical potential amount in a catastrophic failure is a valid issue.
Clearly, from the point of view of our private insurers, we need finite limits on the kind of liability we have in order to operate responsibly.
If we chose in Canada to put into effect unlimited liability, a number of issues would arise. Possibly, the insurance capacity would dry up. There would be issues outside this country, as well. As my manager has indicated, a significant amount of this capacity is offshore capacity from some well-known folks around the world.
The other point that I would make is that there is probably a position to be taken in terms of a private insurance industry providing coverage for a reasonable amount for a reasonable event. I am talking about a smaller nuclear incident, or something that may happen in connection with transportation of materials, et cetera. Going back to the point you made to us about actuarial analysis and things of that nature, clearly we cannot do that for nuclear exposures, but we can ask private industry to manage certain defined exposures. Perhaps the situation then becomes a matter of the private industry responding to the first $75 million, or $500 million or whatever, with the Crown providing the catastrophic coverage for that extremely unlikely event.
Senator Christensen: I take it from your presentation and remarks that nuclear power-generating facilities in other parts of the world also come under an insurance coverage. Is that correct? Does that apply to the CANDUs that we have exported and sold to other countries? Are they covered under insurance? Is insurance a requirement for all those facilities that come under the nuclear power generation umbrella?
Mr. Murphy: Senator, I do not believe it is a requirement, but good business practices indicate that they should be and, indeed, are insured. The majority of reactors in the world are insured by some manner or means, with the exception of some of the former Eastern bloc countries. I am not sure how many of their utilities are insured, but I know that, in fact, several of them are not insured. I know that for certain.
Senator Christensen: Does your association insure nuclear facilities, other than power generating facilities?
Mr. Murphy: Yes, indeed. We insure research and development associated with hospitals' installations, and that type of thing. We insure the shipping and transportation of nuclear hazardous materials, et cetera.
Senator Christensen: A company shipping nuclear material, separate from the power company, would be able to get insurance from you.
Mr. Murphy: That is correct, senator.
Senator Finnerty: You talked about transportation of nuclear materials. If the Nuclear Liability Act did not exist, would you still insure nuclear power stations?
Mr. Hammond: Let me try to answer the question this way: We represent the nuclear association. Due to the very nature of the risk, it is very difficult. One insurance company cannot respond to all the coverage. Therefore, we pool our resources. Insurance companies, insurance underwriters, of which I am one, look at the risk to make sure that there are appropriate regulations in force that actually can protect us in the event of an incident, to make sure that the appropriate management is in place, et cetera.
If there were no Nuclear Insurance Act in Canada, a variety of things would flow from that. First of all, we would look to see what regulations were in place. My manager made the point about how the act regulates liability, and actually defines it in a very absolute sense. Also, under the act is a definition of what our liability would be, and the act in fact controls our policy wording.
I would answer the question by saying that, if the nuclear act were not in place, then there might well be a reduction in available capacity, a reduction in the number of insurers that would wish to become involved.
Mr. Murphy: To further enlarge on that, if I may, the typical homeowner's policy and the typical business policy invariably contain exclusions concerning nuclear exposure.
Senator Taylor: You mentioned in the brief that many other jurisdictions impose very limited liability on the operators. You also noted that the Canadian limit appears inadequate compared with those jurisdictions. How far behind are we?
Mr. Murphy: The limit at the present time under the NLA, the Nuclear Liability Act, rests at $75 million. As mentioned earlier, there are discussions underway to increase that. The exact recommendations have not yet been made public, but there will certainly be a significant increase, in my opinion.
Senator Taylor: Coverage is in the $300 million category in the U.S.A. and the U.K., and $600 million in Paris. Would you be trying to reach somewhere between $300 million and $600 million?
Mr. Murphy: Absolutely. I suspect that the limit will be declared at a reasonable level, and then over a period of time can be phased in to reach quite significantly high levels, in line with international limits.
Senator Taylor: My other question is on channelling. The operator generally has no right of recourse against any person. I know you have channelling for the ones that have been insured. In other words, are you are saying that the operator cannot sue an employee or a corporation?
Mr. Murphy: That is correct.
Senator Taylor: Corporations that are given a defective part cannot be sued.
Mr. Murphy: That is correct. They are protected under the provisions of the NLA that allows these third party providers of services or equipment to participate in that work. They are in effect held harmless. If they had to bear responsibility for the nuclear hazard associated with their work, the services or product they provide, they in turn would have difficulty achieving insurance protection for that.
Senator Taylor: It seems to me that there should be a halfway point, if your subcontractors cannot be sued, or are not liable. For example, for a fireplace in a house, you can be sued if it is put in wrong. However, if you do poor brick work around a nuclear establishment, you are free and clear. Are you not sort of encouraging sloppy subcontractors? Should there not be a compromise somewhere?
Mr. Murphy: It does not encourage sloppy subcontracting or work. Indeed, as I mentioned in my opening remarks, they are not relieved or absolved of the responsibility to conduct their affairs in a best practices manner. Typically, this is spelled out in their contractual arrangements with the nuclear power plant operator.
The point to be made is that we are taking the available capacity through the pooling system around the world, and channelling it into one area so that it is available in total, and not siphoned off by the requirement that the suppliers, the third party contractors, might need to protect themselves if such cover was available. The available capacity is being channelled to protect the operator and, through a blanketing approach, if you will, the subcontractors; the people who come on site to provide services and product; are, in turn, protected.
Senator Taylor: I am not a lawyer, but it seems that you are placing the cart before the horse. I have been contracting all my life; if I could not sue a subcontractor for sloppy work or faulty equipment, I would have had a hard time. Surely that would be especially true in regard to nuclear facilities. Mind you, I have been more involved in offshore work, but we have had some pretty horrendous accidents. For example, we flipped a rig off Newfoundland, and there have been a few things like that. If your subtrades are not suable, because you have so many subcontractors, it seems to me you are adding a hazard to the entire project, rather than taking it away.
Could you not assign a limit that they would be suable for? You are saying you channel it all together, but still, who is double-checking everything? You are leaving it all on the back of the prime contractor to check any imperfect, sloppy or faulty equipment of the subcontractors; is that correct?
Mr. Hammond: Senator, neither my manager nor I are necessarily qualified to comment on the procedures, et cetera, in a nuclear industry. There are other regulatory people who are qualified to comment on that. Perhaps we could restrict our comments to the two issues with which we have experience as insurance providers.
The first issue is that we are dealing with a severe risk here and there is a finite amount of capacity available in the world. If we chose to go back to a tort environment, in Canada, then that capacity would, in essence, be spread over a number of people. At that point, the capacity available to put forward in the event of any one event would decrease. The second comment we would make as insurers is that, in the event of a catastrophic loss, it would seem to us to be in the best interests of the public to have instant payment of that loss without a significant amount of litigation and finger-pointing at that time. As insurers, the channelling and no-fault, if I may use that expression, is fairly attractive in terms of the efficient use of capacity and the potentially fast payment of a loss.
There are other people who can comment on the actual nuclear industry standards themselves.
Senator Taylor: I am glad you used the word "no-fault," because I was going to say that this system has all the advantages and some of the disadvantages of a no-fault system, which does not always measure up.
My other question relates to the subject of premiums. As, world-wide, the incidence of nuclear accidents is of such low frequency, that is, there are so few incidents, the premiums would have to build up. You made a statement that I find puzzling: the premiums generated from nuclear operators are distributed to the insurers and then invested. Do you mean that these people pay a premium? Do you give them back the money to invest?
Mr. Murphy: Through our association, we collect the premium for the hazards from the nuclear power operators. This in turn is turned over to the insurance companies that participate and provide capacity. They in turn, as required by financial regulations, the Superintendent of Insurance regulations, and so on, typically invest the premiums and generate an interest income to stand by for the unlikely event that they will be called upon. It is a typical standard in insurance.
Senator Taylor: I see. I did not read it that closely. "Insurers" is the insurance company rather than the insured. That takes me a step further.
Are there any more special regulations because of the potentially large size of a nuclear accident and the drain that would place on the funds? Do you do anything different with an insuring company to ensure they do not go broke, than you would for any other insuring company? In other words, is the requirement for a reserve the same, whether they have a portion of the money out covering nuclear projects as there would be if they were covering a fire, hail or theft?
Mr. Hammond: I would respond to that comment from the point of view of an underwriter and an insurance company. At this time, under Canadian law, we do not have the ability to reserve a nuclear incident or potential take-up premiums which we receive each year and reserve them against a longer period.
A few years ago, the Canadian government did amend the regulations that govern earthquakes. We now have the ability to take the premium we earn in any one year and save it as an earthquake fund.
As insurers, we look at the return period, which is essentially when the event can occur and, clearly, with something like an earthquake or a nuclear incident, we would much prefer a situation where we can take that money as underwriters and put it aside in a fund where it would not be taxed on an annual basis, because, clearly, we need to reserve it over a long period.
At this time, in Canada, we do not have that opportunity. Certainly, on behalf of the industry, we would welcome any move by the Canadian government to allow us to build up the monies that we take in this kind of premium over 50 or 100 years, whatever is necessary, and we would segment or segregate those funds within our insurance companies and put them to one side, so that they could not be used for other purposes.
Senator Taylor: Madam chair, perhaps we could be provided with a letter in simple language that would outline an amendment. It is important that a reserve be set aside. We are talking about channelling and saying we do not have an earthquake fund or nuclear fund.
Senator Adams: Having recently been given a tour of the nuclear facility at Pickering, I am aware that it takes about 10 years for nuclear cells to cool off in the pool system. How do insurers address dangers to physical structures in situations where cells may be cooling off, such as in a nuclear power station? Are such items, as a building burning down, included in the $75 million figure?
Mr. Murphy: If I understand the question correctly, the $75 million is a liability for bodily injury and property damage. It is a third party coverage; it is not a physical damage coverage.
Senator Adams: Do you have another coverage for that?
Mr. Murphy: Physical damage coverage is available. It is not mandatory to carry physical damage coverage. Some of the operators in Canada have physical damage coverage, others do not. It can be quite expensive to purchase because of the inherent risk.
Senator Adams: I am interested in fields of responsibility within the nuclear industry. As soon as the nuclear cells come out from the boiler system, is there a contractor that is responsible, or is it the company that is responsible?
Mr. Murphy: When the fuel bundles are spent, or when they need to be stored on-site or off-site, the operator is typically responsible.
Senator Christensen: We are talking about third party coverage. Are you aware of what insurance the nuclear facilities themselves carry for liability, damage, equipment failure or anything else?
Mr. Murphy: I am not privy to the specific insurances that the Canadian operators have in place, but the types of coverage that are available include machinery breakdown causing business interruption. If a plant is disabled because of the malfunction of an essential piece of equipment and is unable to produce power, they lose money. That would be covered under what is called business interruption insurance. Again, it is not mandatory. Hence, I have limited knowledge as to the specifics of it.
The Chairman: I should like to understand more clearly what your coverage entails. If I understood you correctly, in response to Senator Kenny, you said that you cover less severe accidents. You acknowledged that in a catastrophic accident involving six million people and international liability you would not be capable of doing anything and, hopefully, that would be the government's responsibility. Is that accurate?
Mr. Murphy: Yes, it is.
The Chairman: There have been minor incidents in Canada. Have you paid out money for any of those?
Mr. Murphy: Not on a third party basis, no.
The Chairman: Although you have been collecting premiums, and there has been liability, you have never paid anything out on any incident.
Mr. Murphy: To my knowledge, there has been no catastrophic event that triggered that.
The Chairman: Do you sell shares in your company?
Mr. Murphy: We are an association, not a for-profit company.
The Chairman: I understand. I was being facetious.
You established as well that you do not cover hazardous waste.
Mr. Murphy: That is correct.
The Chairman: Therefore, you did not cover the helicopter that flew over Canada carrying MOX?
Mr. Murphy: We did not insure the helicopter, because that is a physical risk. That would have come under the aeronautical program. Yes, we were involved in insuring the liability associated with the transfer.
The Chairman: That is interesting. That gets into the area we are trying to get at; that is, assessment of risk. It would be interesting to know how you assessed the risk of what was happening in that helicopter ride.
I have looked at the literature and seen that there are figures that talk about risk. However, I am very troubled that you are collecting money to insure against liability, yet you do not have a scientific basis for assessing risk. In addition to that, you call yourself a second watchdog. This is Alice in Wonderland. You are talking about a theoretical situation. What is the real story?
Mr. Murphy: Assessment of risk is difficult because of the small number of nuclear facilities that exist and the lack of incidents that have occurred. There has not been a proliferation of catastrophic nuclear events. In establishing premiums we draw heavily on the experience of our fellow pool experts, if you will. They may have had some experience and we leverage from that.
With regard to being a second watchdog, we have engineering experts who are capable of examining physical plants and ensuring that the mechanisms of the safety procedures are working properly. We believe that there is a possibility that a nuclear incident could be triggered by a malfunction of the physical risk. That is where we play a role as a second watchdog.
The AECB is absolutely the prime watchdog. However, we have engineering experts who go into the plants and physically examine boiler machinery. In fact, we utilize some of the most qualified experts in the world to do that in order to lessen the possibility of an event occurring through malfunction, through processes, or through safety procedures not being met. We help the operators strive for continuous improvement.
The Chairman: I must challenge your statement that there have been no serious incidents, or very few. There has been Chernobyl, Three Mile Island, and an incident in Japan, and I think the risk is based on one in 10,000 years, or something like that.
You are only looking at minor incidents. Perhaps you could provide us with some written material on this, because I am having difficulty understanding it. How would you assess the damage from Chernobyl or Three Mile Island? Of course we hope it will never happen, but if something happened at Pickering, it would be comparable in terms of the population density. Years after Chernobyl, we are seeing cancer in children and so forth.
Mr. Hammond: Madam Chair, when Mr. Murphy was talking about the incidence of risk, he was talking about Canada. We are well aware of Chernobyl.
The Chairman: But you pool world-wide.
Mr. Hammond: Yes, but our association in Canada only insures nuclear liability business in Canada. We do not write business overseas.
Clearly, the assessment of risk in this class of insurance is extremely difficult. Mr. Murphy has already spoken about how we use some of our traditional expertise, whether it be boiler machinery, fire knowledge, or what have you, in order that we can look at physical plants and use experience that we have elsewhere in determining what is a good risk, and what has some exposures.
We learned much from Chernobyl and the other incidents overseas.The process of the Chernobyl reactor was fundamentally different from a CANDU reactor. When Mr. Murphy talked about world-wide pooling, he was referring to the fact that our engineers come together on a world-wide basis and we look at the lessons learned from the overseas situations. When we do our physical assessments of plants, we take those situations into account.
Because we only insure risks in Canada, our knowledge is restricted to the kind of nuclear reactors we have here. However, we go to the biggest pool, which would be the British pool. Most of the British pool volume is, in fact, world-wide business. I accept the point that this is a very difficult class in which to define risk.
Our people use their experience and the lessons they have learned elsewhere to provide advice for our inspection reports. Clearly, then, the premium levels would vary, based on the types of reactors around the world as well as on some of the incidents that have occurred -- whether they be large ones, such as you have talked about, or small ones, some of which go unreported.
The Chairman: Do you think there will be any difference if nuclear stations are privatized, as is being contemplated? Did you have any role with the AECB, on the shutdown of the nuclear stations? Were there any considerations that you had in that case, and would there be any considerations regarding the privatization of stations?
Mr. Murphy: We were not involved in discussions surrounding the shutting down of any of the plants. If there is a change of ownership to the private sector, obviously, the provisions of the NLA will prevail and, hence, we will be there to provide coverage for those operators.
The Chairman: Do you see a difference in risk?
Mr. Murphy: Not at this point. We would again call upon our engineers to make the frequency visits. We work to international nuclear standards in terms of the frequency and extent of these inspections, et cetera.
The Chairman: The reason I asked you whether you were involved is that you are here as a second watchdog, looking at the ratings. I assume that one of the reasons that the Pickering station was closed down had to do with inadequacy of some kind, and I forget the exact term. One has to be most careful about the terms that were used to rate it, but part of it, as I understand it, was improper functioning. I am wondering, therefore, whether in your inspections -- and, as you say, you are a second watchdog -- you had any liaison with the AECB people?
Mr. Murphy: Yes, we did.
The Chairman: Would you offer an opinion, or anything of that sort?
Mr. Murphy: They are, by far, the primary watchdog, if you will. Our description of ourselves as a second watchdog is a colloquialism rather than an official policy description. We do work with AECB. They are aware of our existence and we are aware of them. We follow their suggested guidelines in the appropriate circumstances.
The Chairman: Could you comment a little further about the helicopter transfer of the MOX and give us some indication of how -- and I think this would be interesting to the public -- you assessed the risk there and how you were involved? Can you tell us more about that?
Mr. Murphy: In establishing the premium for that particular risk, we dealt heavily with the U.S. pool, the Association of Nuclear Insurance, ANI. There have been transfers of nuclear hazardous materials in the U.S., and we drew on their expertise.
The Chairman: They do not allow flights, though. Their laws prevent them. Why is that?
Mr. Murphy: Well, there may be certain unique circumstances in the U.S., in which they will permit it in a prescribed aircraft, et cetera. The hazard, obviously, is that, if for some reason the aircraft has a mechanical failure and crashes into a populated area, therein lies an extreme risk.
The Chairman: This is interesting testimony, because we were told that the hazardous material was in a ceramic container and was as safe as could be. You are now saying that you had to be involved because, had that aircraft crashed, there would have been a risk.
Mr. Murphy: I would suggest that there is always a risk. I do not believe that there is any situation where a nil risk would exist.
The Chairman: I am wondering how this pooling works. Let us take Pickering as an example. They pay an insurance premium, whatever that amount is, per year. Is that right?
Mr. Murphy: That is correct.
The Chairman: Does the insurer take that premium and divide it amongst the companies in the pool? How does that work?
Mr. Murphy: You are quite correct. It is a pooling mechanism. No single company among our 27 participants would be in a position, or desire to be in a position, to provide all of the limits -- $75 million. As a result, the premium is divided up in relation to the proportionate amount of the liability limit that each individual insurance company assumes. If one company has 10 per cent of the liability limit, it will receive 10 per cent of the premium. We have participants that run as large as 40 to almost 50 per cent of the limit, and as small as 3 to 5 per cent of the limit.
The Chairman: Therefore, it is pooled on the basis of the portion of the risk that they are willing to assume.
Mr. Murphy: That is correct.
The Chairman: It does not include storage of waste.
Mr. Murphy: That is correct.
The Chairman: Thank you. Those are all the questions I have.
Senator Cochrane: Mr. Murphy, how many personnel are with the nuclear insurance association?
Mr. Murphy: There are three people: the manager, which is my position, the assistant manager, who is an underwriter, and a support person.
Senator Cochrane: Do you coordinate the association?
Mr. Murphy: That is correct.
Senator Cochrane: Where does your funding come from?
Mr. Murphy: We charge a management fee for services rendered.
Senator Cochrane: Is that charged to all 27 companies in the pool?
Mr. Murphy: Yes, it is a single unit amount that comes out of our profit and loss statement, at an agreed and negotiated amount each year.
The Chairman: I am curious about one thing: is the $75 million the total cap for all the nuclear facilities in Canada, or is it $75 million per facility? How does that work? Is it per accident?
Senator Taylor: I interpreted it as being per accident. That is why I think that $75 million is inadequate when the others have $300 million to $600 million.
Mr. Murphy: Yes, honourable senators, it is on a per accident basis.
The Chairman: There could be three accidents, each at $75 million, in a single year, for example, God forbid.
Senator Taylor: That is why I mentioned the letter asking for the bigger reserve.
The Chairman: Now I understand. Is that correct, Mr. Murphy?
Mr. Murphy: Yes.
The Chairman: Thank you, gentlemen. I hope that you will be patient with us if we ask for some written documentation on some of the questions we have. This is a subject that, certainly, I am not familiar with, and we might want some further clarification.
Mr. Murphy: It will be a pleasure.
The Chairman: And you will respond to Senator Taylor's request?
Mr. Murphy: Yes, we certainly will.
The Chairman: Thank you. That will be very helpful to us in our work.
The committee adjourned.