On Friday Arnold Kling went public with a little email chat that he, Randall Parker and I were having about strategies for managing nuclear power plant risks. The Price-Anderson Act is a controversial piece of law that limits the liability of nuclear power companies, essentially acting as a federal insurance subsidy to the nuclear power industry (my statement of that is also likely to be controversial!).
I suggested a hypothesis: the rigid regulatory approach to nuclear risk, including Price-Anderson, stifles our ability to discover new and potentially more beneficial policy approaches. One such suggestion I made was the use of the reinsurance industry to refine the precision of the risk estimation and achieve more risk spreading.
Arnold is not persuaded, as you can see in his post; he thinks the risk is too discrete and too large. I think it’s an open question. Does the insurance industry prefer Price-Anderson because it increases the static demand for nuclear insurance? Or is there a potential value proposition in the insurance industry working nuclear risk into their portfolios, taking on the monitoring function to protect their financial interests, and in the process laying off risk?
I would also bet, to address Arnold’s specific question, that the insurance/re-insurance industry would have financial incentives and wherewithal to estimate the political risks and costs associated with a nuclear accident. We see it in financial markets all the time; those companies who do a better job of acting in accordance with good foresight about political and regulatory changes. Indeed, they may do better than either regulators or juries.
I agree with one of Arnold’s commenters: I’d like to know what Warren Buffet has to say about it!