Rail giants face claims disaster

MOST train operators face financial disaster if they suffer a major crash because insurance allowing them to reclaim lost revenue has been withdrawn.

Though they can still take out insurance to compensate passengers and replace rolling stock, most have been denied cover for ' consequential loss'. This allows them to make a claim for income lost after a crash as a result of reduced services and fewer passengers.

The train operating companies are understood to be holding emergency talks with the Strategic Rail Authority to set up a self-insurance scheme for the industry, but at present most of them are operating without cover.

St Paul International, which provides cover to 23 of the 25 train operators, said all of them were operating without consequential loss protection. A spokesman said: 'The time taken to get operations back to normal after a crash was so long that the risk was virtually uninsurable. The potential size of claims was getting out of hand. After the Hatfield crash, the extent of interruption to the network and train operators was becoming unquantifiable.'

He denied that the decision to withdraw cover was linked to 11 September, which has resulted in insurers increasing premiums dramatically and becoming far more selective about the risks they cover.

The premiums that train companies pay for passenger liability and rolling stock have doubled in recent months. Some, such as First Group, have been trying to save money by taking claims-handling in-house.

Most of them already take the risk of some consequential losses on their own books. In some cases they can also claim reimbursement from Railtrack. It is cover for losses over and above this that has been withdrawn.

The SRA said talks were taking place about setting up a special insurance company to underwrite the risk, but nothing had been agreed and Treasury approval would be needed if Government funding was involved.

Another insurance expert said: 'The costs of lost revenue after a major accident could push some operators to the edge. If they can operate only half the trains they usually do with half the passengers over a number of weeks, that would put a lot of them under severe financial strain. We could be talking about millions of pounds.'

St Paul International, which took legal action to try to recover £10m of its payments for the Paddington crash from Railtrack, said it had decided to remove cover because it had to pay all the consequential losses, even if an accident was not caused by a company it had insured.