Engaging with the insurance industry
- Date: 27/09/2011
To see the article as it appears in Rail Technology Magazine, please click here. The article can be found on pages 56 - 57:
Roger Lewis spoke at the Rail Safety Summit at the ICC in Birmingham in 2010 on how the rail industry might learn from the maritime and aviation sectors when it comes to buying insurance. He also explained what he, as an underwriter, looks out for when assessing a risk, giving away a few underwriting secrets in the process. This article comes directly from that presentation.
For most insurance underwriters there is little interest in engaging with the railway. We would prefer to stay in the London insurance market, safely inside our industry bubble. Apparently, we also help to take all of the profit out of rail projects. So it was no surprise, therefore, that in a quick straw poll of attendees at a recent rail conference 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 differently 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 first place. Lower claims means more underwriting profit for shareholders and also bigger dividends, all of which benefit 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 1900’s with aspirations to do the same for the rail world this century. There are perhaps some lessons that could be learnt by rail professional from the maritime transport industry which created its own insurance solution in the 1800’s. Merchants, traders and underwriters used to gather in the coffee houses of the old City of London, one of which eventually became Lloyd’s of London, the world's largest insurance market. From these conversations were also born shipping industry owned (mutual) third-party liability insurance companies. There are now as many as thirteen of them, all owned by those whom they insure, and all non-profit making. They exist solely for the benefit 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.
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 mutual insurance company (other than ITIC) but it has learned well over the years how to allocate risk efficiently amongst “project partners”. The bigger entities carry the major risk, only requiring smaller partners to buy more affordable insurance limits. This is both practical and sensible. A small aviation 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 insurance limits – but rather to force the insurance market to cover them, the dominant player in the team, properly, and not only for their own activities but also their subcontractors’ risk. This leaves the smaller specialist players to focus on what they do best, not wasting too much profit on an expensive insurance programme.
In a far younger industry, the rail v. insurance 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 bigger head contractors on how to buy insurance more efficiently. You never know, the rail world might also try to find a collective voice and make more demands from the insurance 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.
This is the very brief technical bit – dangerous - especially so late in the afternoon BUT you might just take away TWO things if you are buying insuranceas a rail professional.
(1) If you are buying rail professional indemnity (PI) insurance, or public liability (PL), perhaps as required to do buy Network 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 expensive 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).
(2) Negotiate on limits of coverage. Do not necessarily accept that 5 million or 10 million of coverage is required, for example. Bigger players can afford bigger policy limits, smaller entities should feel confident saying “I have 1 million – it’s expensive - that is enough.” The head contractor’s insurance should pay the loss first in any case. They will simply make a smaller recovery from smaller subcontractors. Do not allow the “insurance to take the profit out of the project”. Discuss solutions.
Finally, a few secrets from the insurance world. The average business professional - engineer, designer or consultant spends less than 1% of their time thinking about insurance. Reasonable? Certainly. Without the job being done (the 99%), protecting the business from risk is irrelevant. But professional insurance still comes in as a TOP THREE expense to many such businesses. So doing that 1% efficiently is important. Here are THREE quick tips on how rail professionals might better use that 1% of time, might better engage with insurers, given to you, as buyers, from the insurance end of the communication channel.
(1) Present yourself as a true professional (avoid sloppy proposal or application forms and avoid insurance intermediaries/brokers who cannot help you sell your professionalism);
(2) Engage your broker and insurer about where you work in the rail environment (red zone/green zone);
(3) If you get “silence back” from your insurers (or they appear not interested) keep looking. Any broker or insurer who will not engage with you at the buying stage, is unlikely to want to do so when you need them to rescue your business, in the event of a loss or claim. ITIC is one insurer who is keen to engage with your industry. There are also a small number of specialist insurance brokers with a focus on the rail sector. Try and find them.
(Roger Lewis in Underwriting Director at ITIC, the specialist transport industry professional indemnity insurance company, with a focus on the marine, aviation and rail sectors. ITIC is managed by Thomas Miller, a 300 employee owned insurance managing agency with headquarters in the insurance heartland of the City of London and offices also in New York, Sydney, Hong Kong & Shanghai)