Very good story. Thanks. I suspect that the key phrase is that this is a market design problem. It sounds very inefficient for many different railroads, agencies, operators to be building their individual stack of insurance coverage. Seems to me that a national, even international pool is needed. Think marine insurance. Not sure I would want to encourage government control of the pool. Market forces could well be swapped by political ones.
You paint a compelling picture of the problem, but what's the solution? Federal government insuring passenger rail directly? Federal gov't facilitating pool of passenger rail operators purchasing insurance? Something else?
Exactly, Kevin. The maddening part is that this is no longer really a diagnosis problem. It is an ownership problem.
Everybody can describe the pathology, like I just did. The cap ratchets upward. The commercial market does not necessarily supply matching capacity at a tolerable price. New or state-sponsored services get squeezed hardest because they cannot spread the exposure across a giant national portfolio. Contracting parties respond by trying to push the risk onto somebody else. And then every institution quite rationally explains why its statutory authority, budget, constituency, or balance sheet makes it the wrong institution to fix it.
So, we wind up with a nearly perfect, and perfectly maddening, bureaucratic equilibrium:
FRA: "This is fundamentally an access/railroad issue."
STB: "We don't run an insurance program. Insurance is for the states."
States: "We're trying to start a train, not create a national liability market."
Amtrak: "The existing system is difficult, but basically workable for us."
Congress: "Please solve this without Federal exposure, increased spending, or changing anyone's litigation rights."
Insurers: "Mmmkay, gotcha. Here's your premium."
And...nothing happens.
That equilibrium eventually becomes untenable. Once you try to create service outside the familiar Amtrak/state-supported template, suddenly there’s nowhere obvious to park the risk. Everybody can agree that a particular project is worthwhile and still wind up unable to answer the rather basic question: whose balance sheet stands behind the train when something catastrophic happens?
One thing that has changed since our PRAC subcommittee developed its recommendations last year is that, at least for now, I don't see a realistic path to a Federally funded catastrophic backstop. There SHOULD be: we do it for airlines, and we do it for the nuclear-power industry. But we’ve found next to zero appetite in Congress, on either side of the aisle, for doing that.
So I’m turning the question around. Assume Congress gives us no backstop. Assume the $401.9 million statutory ceiling remains in place. What would we build today that would let a new or relatively small public passenger-rail sponsor obtain economically sustainable liability protection without simply handing the entire problem to Amtrak?
I don't think the right model is necessarily “Illinois creates a captive; Virginia creates a captive; North Carolina creates a captive...” That just reproduces the fragmentation we should be trying to eliminate. For smaller agencies especially, I'd be much more interested in some combination of a group captive, protected-cell captive, or possibly a risk-retention-group structure, depending on what lawyers and regulators say is permissible for the particular risks involved.
The National Association of Insurance Commissioners, or NAIC, expressly describes group captives as pooling the risks of multiple members, while protected-cell structures can allow users to participate in a common captive framework while legally segregating their assets and liabilities.
Risk Retention Groups have the additional advantage that, once domiciled in one state, they can write qualifying liability coverage in other states through the federal Liability Risk Retention Act framework.
So, a long-winded way of getting to “here’s what I might propose.” But that’s “Emperor Me.” What we can get Congress, the states, FRA, and the Class Is to embrace might be different.
Agree completely. And that's what we proposed last year...and got zero interest from any congressional office in creating anything like that, unfortunately. I wrote a long-winded reply to my friend Kevin above with more thoughts.
Partly because it was set up a long time ago, in the aftermath of 9/11. It’s hard to roll back a program like that, but even harder to get it started…especially with this Congress.
I knew insurance was a must but after reading Mr Matthew’s article I now have a headache! And feel okay,,, educated on rail transport insurance.
Very good story. Thanks. I suspect that the key phrase is that this is a market design problem. It sounds very inefficient for many different railroads, agencies, operators to be building their individual stack of insurance coverage. Seems to me that a national, even international pool is needed. Think marine insurance. Not sure I would want to encourage government control of the pool. Market forces could well be swapped by political ones.
You paint a compelling picture of the problem, but what's the solution? Federal government insuring passenger rail directly? Federal gov't facilitating pool of passenger rail operators purchasing insurance? Something else?
Exactly, Kevin. The maddening part is that this is no longer really a diagnosis problem. It is an ownership problem.
Everybody can describe the pathology, like I just did. The cap ratchets upward. The commercial market does not necessarily supply matching capacity at a tolerable price. New or state-sponsored services get squeezed hardest because they cannot spread the exposure across a giant national portfolio. Contracting parties respond by trying to push the risk onto somebody else. And then every institution quite rationally explains why its statutory authority, budget, constituency, or balance sheet makes it the wrong institution to fix it.
So, we wind up with a nearly perfect, and perfectly maddening, bureaucratic equilibrium:
FRA: "This is fundamentally an access/railroad issue."
STB: "We don't run an insurance program. Insurance is for the states."
States: "We're trying to start a train, not create a national liability market."
Amtrak: "The existing system is difficult, but basically workable for us."
Congress: "Please solve this without Federal exposure, increased spending, or changing anyone's litigation rights."
Insurers: "Mmmkay, gotcha. Here's your premium."
And...nothing happens.
That equilibrium eventually becomes untenable. Once you try to create service outside the familiar Amtrak/state-supported template, suddenly there’s nowhere obvious to park the risk. Everybody can agree that a particular project is worthwhile and still wind up unable to answer the rather basic question: whose balance sheet stands behind the train when something catastrophic happens?
One thing that has changed since our PRAC subcommittee developed its recommendations last year is that, at least for now, I don't see a realistic path to a Federally funded catastrophic backstop. There SHOULD be: we do it for airlines, and we do it for the nuclear-power industry. But we’ve found next to zero appetite in Congress, on either side of the aisle, for doing that.
So I’m turning the question around. Assume Congress gives us no backstop. Assume the $401.9 million statutory ceiling remains in place. What would we build today that would let a new or relatively small public passenger-rail sponsor obtain economically sustainable liability protection without simply handing the entire problem to Amtrak?
I don't think the right model is necessarily “Illinois creates a captive; Virginia creates a captive; North Carolina creates a captive...” That just reproduces the fragmentation we should be trying to eliminate. For smaller agencies especially, I'd be much more interested in some combination of a group captive, protected-cell captive, or possibly a risk-retention-group structure, depending on what lawyers and regulators say is permissible for the particular risks involved.
The National Association of Insurance Commissioners, or NAIC, expressly describes group captives as pooling the risks of multiple members, while protected-cell structures can allow users to participate in a common captive framework while legally segregating their assets and liabilities.
Risk Retention Groups have the additional advantage that, once domiciled in one state, they can write qualifying liability coverage in other states through the federal Liability Risk Retention Act framework.
I was reading about it here: https://content.naic.org/insurance-topics/captive-insurance-companies
So, a long-winded way of getting to “here’s what I might propose.” But that’s “Emperor Me.” What we can get Congress, the states, FRA, and the Class Is to embrace might be different.
That's exactly the solution: A federal captive pool and backstop similar to what the federal law does for airlines.
Agree completely. And that's what we proposed last year...and got zero interest from any congressional office in creating anything like that, unfortunately. I wrote a long-winded reply to my friend Kevin above with more thoughts.
That's incredibly frustrating. Why are they willing to do it for airlines but not passenger trains?
Partly because it was set up a long time ago, in the aftermath of 9/11. It’s hard to roll back a program like that, but even harder to get it started…especially with this Congress.