Train firms on brink after crash

TRAIN operators face bankruptcy if the rail network is disrupted by Friday's fatal crash at Potters Bar because they have been operating for months without insurance.

Though rail firms have cover for rolling stock and to compensate victims, they no longer have insurance for loss of income if services are cut and fewer passengers travel after an accident.

The Strategic Rail Authority (SRA), which has been desperately trying to secure Government approval for the industry to set up its own insurance scheme, has already warned that many train companies could be forced out of business by a major accident.

After the Hatfield disaster two years ago, traditional insurers stopped providing cover for so-called consequential losses. That meant train operators could no longer claim for the shortfall in earnings caused by disruption as a result of a crash.

The issue came to a head late last year when St Paul International, the insurer that provides cover for 23 of the 25 rail operators, decided the risk was 'virtually uninsurable'.

A St Paul executive said: 'The potential size of claims was getting out of hand. After Hatfield, the extent of interruption to the network and train operators was becoming unquantifiable.'

The train involved in the Potters Bar crash was operated by West Anglia Great Northern, a subsidiary of National Express, which is thought to be uninsured for revenue losses.

Plans to set up an industry insurance company, with initial funding from the SRA, were put to the Department of Transport before Easter. So far, the department has failed to agree to the proposals, even though the SRA has issued stark warnings of the financial meltdown that could follow a crash.

The SRA has told Transport Secretary Stephen Byers that not only could several rail companies face bankruptcy, there would be enormous additional costs if the SRA, as operator of last resort, was forced to bail out one of them.

Byers was also told that the lack of cover would reduce the future value of franchises. It is understood that outline plans for an industry insurer have been drawn up by the giant insurance broker, Marsh. The proposals call for the SRA to put up the initial capital, which will be recouped through premiums charged to train operators.

The SRA, which said it would take only three months to set up the new operation, believes such a company could eventually be sold back to the rail operators or to a traditional insurer wanting to re-enter the market.

Knock-on losses from a major crash can run into millions of pounds. St Paul took legal action against network operator Railtrack to try to recover £10m of the insurance claims it paid as a result of the 1999 Paddington disaster.

Shares in train operators fell sharply on news of Friday's crash. The biggest faller was FirstGroup, down more than 21p at 302p. National Express closed 40 1/2p lower at 644 1/2p while Go-Ahead dropped 37 1/2p to 707 1/2p.