With major infrastructure projects underway and many more planned, the rail sector is on a steady upward curve.
Broadly speaking, rail insurance provides compensation to those who experience losses, damage, delay, death or injury due to a rail accident or incident. However, arranging rail insurance requires specialist attention because cover is a lot more complicated to arrange than in other categories.
Brokers with no rail experience need to be particularly cautious, as there are many issues that most professionals simply don’t come across in day-to-day broking.
David Torossian, Principal of Marsh’s Transport & Logistics practice, sees rail as largely in step with the general insurance market, with insurers looking to increase rates on property insurance to offset the large amount of rail infrastructure damaged in Queensland’s natural disasters earlier this year.
“Locally, there are very few insurers prepared to underwrite rail liability insurance,” says Torossian. “It isn’t hard to obtain adequate cover, but it is hard to get it at a reasonable price. This can be frustrating when rail clients have not suffered any catastrophe losses yet still see insurers looking to increase their premiums,” he adds.
“There’s a high volume of rail infrastructure projects in motion or at design phase around Australia, and some mining companies are looking to utilise rail to transport resources into ports requiring new links to be built. The Northern Sydney Freight Corridor program will begin soon, and the Southern Sydney Freight Corridor program began some years ago and has had a positive impact on resource movement.”
Marsh has also noticed that property premiums are going up across the sector. The company believes that this is partly due to the increased volume of infrastructure projects that need to be insured and it is also a reflection of insurers attempting to encourage an upward rate movement. In stark contrast, they report that liability premiums have stayed relatively flat.
The specifics of arranging cover can be complicated and Torossian warns that “freight operators and their brokers need to carefully read and fully understand the insurance and indemnity requirements as laid out in their track access agreements”. “Typically, these require the freight operator to have high insurance limits and some agreements dictate that if the insured limit is inadequate, the freight operator still must still indemnify the track owner,” he explains. “It really is imperative that the freight operator meets these requirements and understands the exposures.”
David Keys, Manager – Corporate Department Direct at AustbrokerPhillips thinks it is particularly difficult to obtain rail insurance due to the limited market. “One of the main problems is that in many cases the rail authorities require a $250 million liability cover to access their track network,” he observes, “and finding that capacity locally is virtually impossible.”
Keys maintains that one of the biggest issues now is convincing the track access people to allow users onto rail without a need for massive liability cover.
“This has been a major impediment for many clients who have been either unable to obtain up to $250 millionin cover or simply unable to afford it.
However, we are seeing signs of this requirement being relaxed by track access companies,” he says.
“We had a client who wanted to run their own locomotive between two major cities four years ago,” says Keys. “The cost of Public Liability was so exorbitant that the client shelved it. Furthermore, nobody knew how to insure the train itself. Underwriters didn’t have a policy for it and most were unsure whether it was a marine policy, a motor policy or a property policy.”
However, the sector seems to be moving in response to demand. “We recently made enquiries into this again and found a local market to insure the train and the Public Liability at substantially less than the premiums we were quoted four years ago,” Keys adds.
The majority of rail business is currently placed with Lloyds via underwriting agencies, and JLT sees the commencement of the High Speed Rail (HSR) study, unveiled in August 2011, as likely to increase local participation as well as generate extra interest from overseas insurers in the next few years.
Indeed, it is predicted that by 2036 the HSR link could be carrying around 54 million people annually,with projected costs as much as $108 billion and tracks covering in excess of 1600km.
The company sees insurance capacity for rail generally, including HSR, remaining readily available up to about US$1 billion for casualty and, for high property values, generally insured to a first-loss limit based on the estimated maximum loss.
JLT also believes that Australian and overseas insurers will recognise the potential for significant investments in new infrastructure and technology here, and look for more detailed underwriting information to allow them to assess risk quality and distinguish those with a better risk profile.
This renewed focus on where rail is headed in this country bodes well for increasing competition in the sector and potentially a relaxation of some of the very high limits required for liability cover.
Rail corridor coverage requires specialist knowledge but in many instances, unknown to the broker, the Insured has expanded their working activities into the rail corridor without being fully protected with appropriate cover. So in this case, the insured and their broker weren’t aware they needed rail cover.
This issue is only usually identified either after the insured has requested a Certificate of Currency, which usually cannot be provided because the new activities are not covered, or at renewal where the risk is declined. So being aware of the necessity for coverage is critical because the insured could be left without cover, which can consequently expose the broker’s Professional Indemnity.
Here are some points to watch out for to avoid trouble when working in the rail corridor.
1. Anyone working within the rail corridor is required to undergo a specific rail induction safety course.
2. ‘Audible track warning devices’ are not alarms, but an explosive charge placed on the rail-line to warn of incoming trains, so policies should cover liability arising from explosive charges.
3. Handling/removing old side-track/signal troughing usually involves handling or removing asbestos that has usually been in-situ for decades, uncoated and in an advanced deteriorated state. Therefore, specialist Asbestos Liability cover is required for such activities.
4. Certain work in the rail corridor will require an Insured to work unsupervised. This may contradictsome policy T&Cs so ensure that you disclose such work will be ‘unsupervised’.
5. Be mindful that industrial sand-blasting and/or repainting on rail premises will usually involve exposure to lead-based paint.
6. Upgrades to old electrical transformers/sub-stations will usually involve exposure to the hazardous material PCB and possibly asbestos.
7. Third parties usually require their interests to be noted and those terms are usually outlined in a contract.
8. Earthworks in the rail corridor is usually embankment and/or drainage work – a very different exposure to ‘landscape gardening’.
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