Unfinished draft law

Enactment of a law “On mandatory insurance of a civil liability for causing harm in operation of dangerous object” has been postponed for the time being again. The deputies believed it would be passed before the end of 2006. However, new year session started with another postponing of the second reading.

Voluntary yet compulsory

Today, this type of insurance is considered to be voluntary and is regulated by two laws: “On industrial safety of hazardous production facilities” and “On safety of hydrotechnical constructions”. Both laws are not mandatory though actually they may be considered as voluntary yet compulsory.

Insurance premium payments are very low, insurers say. In case of loss occurrence payment totals from 1 to 7 million rubles since today insurance premium is paid from the company’s internal profit. If the law “On mandatory insurance of hazardous production facilities” passes, the companies’ insurance premium will be much higher influencing the cost price of the companies’ production. At the same time the insurers think that today our national legislation provides no methods enabling assessment of risk and loss from possible accidents.

In case of the new law enactment insurance policy will become obligatory for the owners of oil tank farms, as they are considered as hazardous facilities. Minimal sum of insurance will male RUR 14.8 million, maximal – RUR 6.5 billion. The policy size depends on a possible number of injured persons. This number is to be determined “by a specially accredited organization”. Insurance premium will be determined as a sum of insurance multiplied by insurance tariff, which has not been determined yet. The limits for a policy are probably to be determined after the second reading.

Neither experts nor large industrialists support such determination of insurance premiums. Application of a general approach to risk assessment together with neglecting of the facility specificity is considered to be one of major drawback of the bill. Alexander Moskalenko, president of Saint Petersburg Minicipal Center of Expertise thinks that “new rules don’t provision distribution of hazardous facilities by location. Of course, these facilities are divided by groups but actually, any hazardous facility may be not very dangerous if it is located at a bare place while it is much more dangerous being located close to residential area. The draft bill does not consider this fact”.

Supporters and opponents

Draftsmen think the law is to ensure clear legal regulation in protection of rights of people and organizations, which may be injured in emergency situations at hazardous facilities. Besides, the bill is to decrease risk andsize of budget expenses for emergency management. Insurers being another interested side insist that the bill is to support development of a finalization reserve for both insurers and authorities for emergency management and recovery of damage for people and organizations.

Hazard area

Potential loss from emergency situations at hazardous facilities totals RUR 100 billion per year, RF Emergency Ministry reports. However the opponents of the bill doubt correctness of this statistics.

All in all, there are over 300 hazardous facilities in Russia. The figure includes 233,000 industrial facilities (79%), 29,000 hydrotechnical constructions (4%), 40,000 gasoline filling stations and gas filling stations (17%), thousands of reservoirs for waste waters and production residuals, 60 large water storage facilities (3%). About 100 million residents of RF live in the area of hazardous facilities.

According to Russia’s nature supervision watchdog Rosprirodnadzor, the most frequent accidents relate to violation of industrial and occupational safety requirements. About 60 oil tank farms are located in the North-West of Russia alone. The majority of them are within the hazard area since many of them were built in 30-40-ies with some operating from the end of the 19th century. According to Vasily Smerechuk, head of interregional department on supervision of explosive facilities and products of chemical, oil-chemical and oil-refining industries of RosTechNadzor (Federal Service for Supervision of Environment, Technology and Nuclear Management) in Saint Petersburg, capital consumption of the industry companies makes 70%.

Under such circumstances, even owners of oil tank farms consider it is necessary to introduce mandatory insurance. Pavel Malko, Director General of Saint Petersburg oil base Sigma, has told PortNews IAA that insurance at such facilities should be a normal practice. Additional insurance charges will of course influence the cost of services but it is not the sum to change cost price considerably. As of today, the size of insurance payments is quite acceptable, Malko says.

However, owners of large facilities oppose the law. Alexander Koval, the developer of the draft law, has told PortNews IAA that major opponents of the new law are the Union of Oil-Industry Workers and Russian Fuel Union (RFU). RFU disputes economic substantiation of the draft. According to RFU's calculation, minimal sum of insurance does not correspond to minimal insurance premium. Grigory Sergienko, Executive Director of RFU, commented on the draft law: “RFU does not essentially oppose the concept of the law. There are no guarantees the law is to work in practice. The system proposed may be efficient only at a well-developed insurance market, which should be open for foreign insurers and which applies reinsurance plans. As of today, neither government nor large insurance company may provide guarantees of obligatory indemnification”.

The one entitled

The draft law stipulates development of a certain insurance body to operate at the market of mandatory insurance. Insurance pool is to be formed for joint responsibility as the company’s reserve may not be sufficient in case of a loss occurance.

Nominally, access of insurance company to the market of mandatory insurance should be unlimited, while in fact, the majority of insurance companies are to face a great obstacle: only those, which have a corresponding license and 5-year experience may be engaged in public liability insurance. Only 26 insurance companies – members of NSSO (National Union of Liabilities Insurers) meet the requirement. Yury Yakovlev, NSSO’s president, enactment of the bill may result in a 10-fold increase of insurance charges to RUR 21 – 30 billion. Besides, experts consider this type of insurance as claimless since the practice of larger insurance companies shows there have been not many insured events in recent years.

According to the statistics held by General Insurance Company OJSC, none of the company’s 27 subsidiaries faced any relevant event insured during last 6 years. ROSNO company reports seven insurance claims within last 6 years. Among the events there was emission of gas condensate, breakage of a wire rope, downfall of a crane with partial crashing of a building as well as oil spill and explosions at boiler stations. Insurance compensation totaled RUR 314 thou. Russian World company had similar results. Insurance compensation totaled to RUR 3 million with total insurance premium amounting to RUR 27 million.