Preface

This post is part of a series exploring existing approaches to regulation that seem relevant for thinking about governing AI.

The goal of this series is to provide a brief overview of a type regulation or a regulatory body so others can understand how they work and glean insights for AI governance. These posts are by no means exhaustive, and I would love for others to dig deeper on any topic within that seems useful or fruitful.

While I would be happy to answer any questions about the content below, to be honest I probably don't know the answer; I'm just a guy who did a bunch Googling in the hopes that someone can gain value from this very high level research.

Thank you to Akash Wasil for his inspiration and guidance in creating this series, and to Jakub Kraus for his invaluable feedback on earlier drafts.

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Insurance in Safety-Critical Industries

Previous posts in this series explored bodies that could govern AI development. Among many regulatory approaches that such an organization could employ, one interesting prospect is requiring labs that develop large AI models to have insurance against catastrophic risks. This could help promote accountability on behalf of the AI developers while also providing society some protection against AI risks.

To see how AI insurance could work, I looked at potentially analogous insurance requirements for "safety-critical" systems, the Wikipedia definition of which is "a system whose failure or malfunction may result in...death or serious injury to people, loss or severe damage to equipment/property, [and/or] environmental harm."

This document assumes some familiarity with insurance terms like liability coverage, premiums, providers, minimum limits, etc. Because insurance is quite confusing, I've included a tl;dr "main insights" summary below, with more detailed information, separated by industry, after that.

Main Insights by Industry

• Nuclear
  • Price-Anderson Act requires power plants to get liability insurance for offsite damages, which are paid for by a private insurance company and, if necessary, an insurance pool funded by the reactor companies
  • NRC also requires $1.06 billion additional onsite insurance for all reactor sites
• Aviation
  • Dept of Transportation requires accident liability insurance for US direct air carriers and foreign direct air carriers
  • Insurance can be purchased or can be achieved through “self insurance” (setting aside sufficient funds to meet the minimum coverage requirements)
• Space
  • Requires that commercial space launch companies purchase insurance against claims by third parties and for loss or damage to federal property and personnel up to a maximum probable loss (MPL) amount
• Technology
  • Department of Homeland Security SAFETY Act limits the liability of anti-terrorism technology companies
  • Tier 1 protection limits liability to the amount of insurance that the DHS determines the company must maintain; Tier 2 allows a company to potentially eliminate all liability for claims made against its technology

Nuclear

Price-Anderson Act

• A federal law passed on Sept. 2, 1957 that places a cap on the total amount of liability each nuclear plant licensee faces in the event of an accident
  • Goal is to encourage private investment in nuclear power by limiting liability for offsite personal injury and property damage caused by an accident
• Two tiers of insurance
  • 1) Owners of nuclear power plants pay for $450 million in private insurance from American Nuclear Insurers (see below) for offsite liability coverage for each reactor site (not per reactor)
    • Average annual premium for a reactor site in 2022 was ~ $1.3 million
  • 2) If a nuclear accident causes offsite damages in excess of $450 million, each licensed reactor company is required to contribute an equal amount of additional funds into an insurance pool, up to $131.056 million per reactor
    • With 95 operating reactors currently in the insurance pool, this second tier of funds contains ~ $12.45 billion
  • If offsite damages exceed the funds available from both the primary and secondary tiers (i.e., $450 million private insurance + $12.45 billion Tier II pool = $12.9 billion), each licensee would be assessed an equal share of this excess up to 5% of the maximum deferred premium ($131.056 million)—approximately $6.553 million per reactor
  • If all of the above measures still don’t cover the offsite damage costs, Congress decides how to obtain additional relief
• American Nuclear Insurers: a joint underwriting association that writes Tier 1 insurance for all US nuclear facilities
  • Comprised of 22 domestic property/casualty insurance companies
  • Insurance covers offsite bodily injury, sickness, disease or resulting death, property damage and loss, including reasonable living expenses for evacuated individuals

NRC Onsite Insurance Requirements

• Separate from the Price-Anderson Act, the NRC requires licensees to maintain a minimum of $1.06 billion in onsite property insurance at each reactor site (Price-Anderson only covers offside damage to surrounding people/property)
  • The NRC added this requirement after the 1979 Three Mile Island accident (a partial reactor meltdown in Pennsylvania) out of concern that licensees may be unable to cover onsite cleanup costs from a nuclear accident
• This insurance is required to cover the licensee’s obligation to stabilize and decontaminate the reactor and site after an accident
• Nuclear Electric Insurance Limited (NEIL) provides onsite insurance for all NRC licensed reactor sites
  • NEIL is a mutual insurance company: a cooperative owned entirely by its policyholders, with profits either retained within the company or rebated to policyholders in the form of dividends or reduced future premiums

Aviation

Aircraft Accident Liability Insurance

• Dept of Transportation (DOT) requires accident liability insurance for US direct air carriers to operate in interstate or foreign air transport, and for foreign direct air carriers to operate in foreign air transport (foreign carriers can’t fly US domestic routes, although there have been some attempts to change this)
• Minimum coverage for US and foreign direct air carriers (as of January 1, 2022):
  • Third-party accident liability coverage: covers bodily injury to or death of non-passengers and damage to property; minimum coverage of $300,000 for one person and $20,000,000 for one aircraft
  • Passenger accident liability coverage: covers bodily injury to or death of passengers; minimum coverage of $300,000 for one passenger and a total per aircraft of $300,000 times 75 percent of the number of passenger seats
• The minimum amounts of coverage required may be met either by purchasing insurance policies or by a self-insurance plan, where a company simply sets aside sufficient funds to meet the minimum coverage requirements
• The certificate of insurance or proof of self-insurance must be on file with the DOT and must be available for public inspection at the carrier’s principal place of business

Space

US Liability risk-sharing for commercial space transportation

• Enacted in 1988 to allocate risk among public and private participants in launch activities and to relieve private industry of the risk of potentially catastrophic liability associated with launching satellites into space
• Administered by the Federal Aviation Administration (FAA)
• Requires that commercial space launch companies purchase insurance against claims by third parties and for loss or damage to federal property and personnel up to a maximum probable loss (MPL) amount

Liability risk-sharing regime has three tiers that cover increasing amounts of potential claims:

• Tier 1: MPL-Based Financial Responsibility Requirements
  • Launch or reentry licensee (FAA requires a license to launch and return rockets into space) obtains insurance to cover third party claims of injury, loss, or damage to launch or reentry participants; also covers damage to US Government-owned range property (an area where rockets are launched)
  • The FAA sets insurance requirements based on the its determination of the MPL that would result from licensed launch or reentry activities, with requirements of:
    • Third party liability: the lesser of $500 million, or the maximum available on the world market at reasonable cost
    • Government range property: the lesser of $100 million, or the maximum available on the world market at reasonable cost
    • (Working definition of “reasonable cost” is not totally clear, but the FAA cites [p.103] NASA’s practice of comparing the cost of insurance with the cost of the launch; if insurance is “too high” relative to mission costs, it is not reasonable)
• Tier II: Catastrophic Loss Protection (Government Payment of Excess Claims, or “Indemnification”)
  • If third party liability claims exceed the Tier 1 MPL insurance coverage, the US Government may pay additional claims up to $1.5 billion (as adjusted for post-1988 inflation)
  • U.S. Government waives claims for property damage above required property insurance
• Tier III: Above MPL-Based Insurance plus Indemnification
  • If third party claims exceed Tier I MPL insurance coverage and Tier II government indemnification of $1.5 billion, the launch company has to cover the rest

Technology

Department of Homeland Security (DHS) SAFETY Act for Liability Protections

• Limits the liability of companies for claims resulting from an act of terrorism where Qualified Anti-Terrorism Technologies (QATTs) have been deployed
  • This is supposed to incentivise the development and deployment of anti-terrorism technologies by decreasing possible liability for their use
  • DHS Office of SAFETY Act Implementation reviews and approves QATTs; examples include metal detectors, baggage screening machines, fire protection insulation, etc.
• Applies to claims filed in US courts against “Sellers”: any person, firm, or other entity that provides a QATT to customers and to whom a Designation has been issued
• Applicants receiving SAFETY Act protection are required to obtain and maintain a certain level of insurance coverage as specified by the DHS on a case-by-case basis
• Two levels of liability protection
  • Tier 1 - “Designated Technologies”: liability for products or services is limited to the amount of liability insurance that the DHS determines the Seller must maintain
  • Tier 2 - “Certified Technologies”: allows a Seller of QATTs to invoke the “Government Contractor Defense” (a rule that limits the liability of contractors supplying defense equipment to the US government) and potentially eliminate all liability for claims