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LEGAL & LITIGATION


Roger Lewis, underwriting director of ITIC, explains what the rail industry might learn from the maritime and aviation sectors when it comes to buying insurance and what he, as an underwriter, looks out for when assessing a risk.


F


or most insurance underwriters, there is little interest in engaging with the rail-


way. We would prefer to stay in the London insurance market, safely inside our industry bubble. Apparently, we also help to take all of the profi t out of rail projects.


So it was no surprise, therefore, that in a quick straw poll of attendees at a recent rail confer- ence I spoke at, insurers came a close second to politicians in the unpopularity stakes.


There are some underwriters (and insurance brokers) who are interested in dialogue with the transport industry; not many of us, but a few. My own company, ITIC, thinks differ- ently to many other commercial insurers. As a mutual insurer, owned only by those whom it insures, ITIC has a clear interest in minimising losses, or preventing claims from happening in the fi rst place.


Rail aspirations


Lower claims means more underwriting profi t for shareholders and also bigger divi- dends, all of which benefi t goes to those whom it insures. ITIC pays a dividend every year to its insured membership – 15% in 2010 - which is used by most to subsidise the insurance cost. ITIC also produces claims bulletins and advice on contracts and risk management, an approach it perfected in the marine professional world through the 1900s with aspirations to do the same for the rail world this century.


There are perhaps some lessons that could be learnt by rail professionals from the mar- itime transport industry, which created its own insurance solution in the 1800s. Mer- chants, traders and underwriters used to gather in the coffee houses of the old City


56 | rail technology magazine Aug/Sep 11


of London, one of which eventually became Lloyd’s of London, the world’s largest insur- ance market.


From these conversations were also born shipping industry owned (mutual) third- party liability insurance companies. There are now as many as 13 of them, all owned by those whom they insure, and all non-profi t making. They exist solely for the benefi t of their insureds, sharing some risk with each other, otherwise competing but leaving the insurance commercial market to pick up the risks they do not want.


Learning from aviation


The rail industry does not yet have its own insurance company; a plan for the future perhaps, especially if commercial insurers continue to be so unpopular. The aviation world also does not yet have an industry mu- tual insurance company (other than ITIC) but it has learned well over the years how to allocate risk effi ciently amongst “project partners”. The bigger entities carry the ma- jor risk, only requiring smaller partners to buy more affordable insurance limits. This is both practical and sensible. A small avia- tion engineering practice cannot afford to buy the same coverage as EADS or Boeing.


These big entities use their muscle the right way – not to push smaller subcontractors to buy high/unaffordable 5/10 million insur- ance limits – but rather to force the insur- ance market to cover them, the dominant player in the team, properly, and not only for their own activities but also their sub- contractors’ risk. This leaves the smaller specialist players to focus on what they do best, not wasting too much profi t on an ex- pensive insurance programme.


Together we stand


In a far younger industry, the rail vs. insur- ance relationship is far less developed, at least for now. It doesn’t have to be that way, of course.


Perhaps the rail industry just needs to stand up for itself a little more, engage the big- ger head contractors on how to buy insur- ance more effi ciently. You never know, the rail world might also try to fi nd a collective voice and make more demands from the in- surance world.


In turn, underwriters must recognise the dramatic improvements in professionalism – and safety – that rail is delivering. The marine and aviation industry has learned how best to engage insurers whilst their industry developed through the last two centuries, perhaps rail could look at these parallel sectors more closely, see what they have done and take the best bits.


If you are buying insurance as a rail profes- sional, here are two key things to note.


First, if you are buying rail professional indemnity (PI) insurance, or public liabil- ity (PL), perhaps as required to do by Net- work Rail or a head contractor, do not buy a policy without coverage for death or bodily injury or property damage coverage. Hard to believe I know, but there are insurers out there, I am sad to say, who will charge ex- pensive premiums for a policy that will not respond in the event of a rail accident. It is a free insurance market, so they cannot be stopped, caveat emptor (buyer beware).


Secondly, negotiate on limits of coverage. Do not necessarily accept that £5m or £10m


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