As U.S. and Canadian transportation officials take a closer look at the fiery train derailment in New Brunswick, some insurers instead of taking a step back may see an opportunity to take on the added risk.
“Some may look at it as an opportunity, it depends on their risk appetite,” says Nick Kandiuk, Assistant VP Casualty at A.M. Fredericks Underwriting Management. “There’s been a string of rail accidents, both here and in the U.S. The Lac-Mégantic was especially serious, as it had considerable residential exposure.”
What is crucial is to have large global underwriters to cover what Kandiuk describes as the burning layer.
“Some companies like
AIG would be able to quote for high hazard. The first $5 to $10 million will be the critical layer; the burning layer,” Kandiuk told Insurance Business. “That’s always been a tough one to insure, not many insurers are in that class. We only have Lloyd’s available for that type of cover.”
The current investigation by federal authorities on both sides of the border centers on the older model of tankers involved in last week’s crash, the DOT-111 tank car. Two of the cars that derailed were older model tankers that have been criticized as more prone to rupture during an accident, says officials from the Canadian National Railway Company.
The DOT-111 cars commonly haul crude oil in North America. Oil cars were also involved in the Lac-Mégantic, Que. derailment, the same Bakken oil in the New Brunswick crash, and that caught fire in Alabama and North Dakota. (continued.)
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According to the Transportation Safety Board, Bakken oil is lighter and more volatile than traditional crude.
But despite the number of accidents, there is an opportunity for insurers to step in and take advantage of what can be a lucrative market.
“Everything is insurable if the premium is right,” says Kandiuk. “Some may want to take on the risk, and right now, those premiums will be high. But rail travel is not readily insurable to start with. It is a severity issue, not frequency – as shown in Lac-Mégantic, there was considerable exposure.”
In the New Brunswick derailment, CN said that three of the five cars carrying crude were DOT-111s that had been built to higher standards than the earlier version.
U.S. Transportation Secretary Anthony Foxx told North Dakota senators last week that he will call on railway CEOs and the head of the American Petroleum Institute to explain what they are doing to improve safety while moving crude oil – particularly crude that comes from the Bakken region, located in Manitoba, Saskatchewan and North Dakota.
Investigators from the Transportation Safety Board said they believe one of the train’s wheels had a crack that caused it to slip toward the centre of the tracks. According to CN officials, the sudden wheel failure may have resulted in the derailment of more cars further back on the train.
