Using Insurance Premiums to assess Nuclear Power Plant Risks

What are the odds of a major nuclear power plant accident?  Estimates by the U.S. Nuclear Regulatory Commission (NRC) traditionally relied on engineering models of complex reactor systems, such as the Reactor Safety Study. The NRC enlists Analysis & Inference to deliver a “market-based view” of the risk, as revealed by the insurance premiums nuclear power plant operators pay.

According to standard industry practices, the cost of an insurance premium is proportional to the value of the power plant’s claim and the probability of an accident. Add in expenses and a profit margin for the insurer, and that determines the premium. Knowing the premium cost, expenses, and profit margin lets you back out the degree of probability that insurers apply.

A+I gathered data on premiums from the four liability programs operated by syndicates of insurers that insure America’s nuclear power plants. Accident costs, expenses and profit margin were estimated separately.

The report produced by A+I senior statistician Dr. William Fairley estimated that the probability of an accident ranged from 1/1500 to 1/200 per reactor year – over two orders of magnitude greater than was estimated in The Reactor Safety Study (AKA the “Rasmussen Report”), the largest engineering study of reactor safety then available.

The Report was published by the NRC as “Design, Costs, and Acceptability of an Electric Utility Self-Insurance Pool for Assuring the Adequacy of Funds for Nuclear Power Plant Decommissioning Expense,” NUREG/CR-2370. A+I's novel market-based probability assessment provided a fresh perspective on the likelihood of a nuclear accident.