Greetings to you all in North America.
I have the following enquiry, which I've already sent to several operating railways in the USA and Canada.John Smatlak of Orange Empire Railway then put me onto this interchange.
I'm trying urgently to ascertain what the situation is in North America regarding skyrocketing premiums since September 11 and their effect
> on operating historic railways and tramways.
>
> South Australia is a large State in area but with a small population of only
> 1.5m people. It has a network of operating railways and one tramway. They
> operate quite independently but cooperate under the umbrella of the Council
> of Historic Railways and Tramways of South Australia. Website is
> www.chrtsa.org.au).
>
> Over the weekend several of the key societies including the Pichi Richi
> Railway and Steamtown Peterborough announced that they are ceasing
> operations effective 1 July. This is because they have been faced with
> absolutely huge increases in premiums and don't have the economies of scale
> to be able to afford them.
>
> Frantic efforts are being made to remedy the situation. This is especially
> as, by a matter of unfortunate timing for it, the State Cabinet -the council
> of Ministers of the government- happens to be holding its weekly meeting in
> that region as part of a round of "Community Cabinets." So the phones are
> running hot.
>
> North America has generally been in front of Australia in having to deal
> with the impacts of litigation and indemnities for risk.
> I've therefore checked the web and pulled out a few contacts who look as
> though they're in the same game as the entities which have just closed.
>
> My questions are:
> * Are North American operating historic railways being forced to cease
> operations because of rising premiums?
> * If not, are they facing rising premiums?
> * If they are, what strategies have they been able to adopt to absorb
> the impacts?
> * Are there any particular societies or individuals who seem to have
> especial expertise on this matter?
>Since governments -State, local and even national -can play a role via their policy settings or their willingness to intervene or not to prop up enterprises during this time of insurance chaos: can anyone provide examples of creative intervention by governments?

> For your information, I was for 20 years Director of the History Trust of
> SA, the State government agency for operating a number of history museums
> and advising and assisting the State's 200 local and specialist museums. So
> I have a strong commitment to trying to help out my colleagues
> -overwhelmingly dedicated volunteers -at the societies under threat.
>
> I would greatly appreciate any advice from you. Quick and short is as good
> as long and considered but late!
>
> Thank you in advance for your assistance.
Peter Cahalan, Manager, Interpretive Programs, South Australian Tourism Commission


cahalan.peter@saugov.sa.gov.au

There have been some victims already and many fear more to come. One is the operations of Frisco 1522 in St. Louis, already struggling, insurance was a big part of their deciding to cease operations. I don't know any solutions, in my opinion insurance companies should be prevented by law from jacking premiums of entities that had no connection or claims resulting from the terrorist attacks.

G'day Peter;

It appears that we in the USA are now just starting to deal with the realities of responding to the higher rates of insurance driven by the high cost for insurers in the reinsurance markets.

One main line steam locomotive has been stored as a result, and given the not only higher premiuims but the greater amount of coverages required by mainline railroads, many fewer proposals will get past the initial inquiry stage.

Forest fires have had a much greater impact on the operation (or lack thereof) of some of our largest operating privately owned tourist railroads with their own rights of way. Probably some lead time is being eaten now as the existing policies run their courses, and it wouldn't surprise me to see some of them drop out when faced with new premium rates.

This follows on the heels of a recent rationalization of the regulations for operating steam locomotives on federally regulated railroads which is causing some attrition of some of the more marginal operators as they can't bear the costs of bringing their engines into compliance.

I believe the insurance crisis will pass due to market pressures but there will have been a toll taken in the loss of many operations that haven't the resources to sit tight for a couple years while it irons itself out. One way to speed up the process is to act legislatively to cap the amount of damages which can be claimed, and as a result of the lesser risk, demand insurers lower premiums in turn. We are not culturally prepared for this sort of action. Things may be different in Oz.

Not only are operating railroads feeling the squeeze, but museums that don't turn a wheel and contractors working on railroad restoration projects are having great difficulty finding liability insurance at any reasonable rate.

Two insurance agencies regularly appear at our Tourist Railway Association conferences. Hamman - Miller - Beauchamps - Deeble and McCarthy. You can find them listed at the TRAIN website - www. train.org if memory serves. They would be in a position to give you the insiders view from the insurance industry. They don't like raising premiums and forcing their customers out of business either.

Dave

irondave@bellsouth.net

Peter,

Insurance has been seriously limiting USA operations for about a decade. It is only now that some high profile operations are/will be extinct because of it.

As Dave said, we are stuck in a bigger problem than just rising rates. We have a society that can sue AND WIN for stupidity. From standing on train tracks and being killed to dumping hot coffee on your lap, millions of dollars await as Americans try to litigate Darwin out of business.

I would suggest you look into Germany's self-responsibility laws which allow them to do excellent things like open old steel mills as industrial parks. Apparently, if you are stupid and die all you get is a tombstone that says you were stupid and died. Your parents do not get Johnny Cochrane, $10 million and a spot on Good Morning America.

We have a societal problem, Peter. The railroads are low-hanging fruit and are among the first victims. I live across Raritan Bay from lower Manhattan, and I can tell you from first hand experience that there is an alarming number of people losing businesses and homes the past 9 months due to the fact they cannot afford the basic needs.

Arguing for exceptions for tourist-economy businesses may be something we end up doing here on the Jersey Shore, so I'd be interested to hear how you do.

There has been an ongoing debate among areas in the New England states about what toruist railroads REALLY do for the local economy. There is a lot of anti-railroad sentiment when it comes to contributions to the regional economy. Which makes me wonder how successful any arguments for exception may be.

Rob Davis



trains@robertjohndavis.com

On a slightly different note, I've been wondering for several months why a group of individuals couldn't form an insurance cooperative, rather like the credit unions perhaps. I've come to find out, while reading the news paper the other day, that Physicians have done just that. Turns out a physician's malpractice insurandce is usualy providede by one of several physician owned and opperated groups. I gather that this has at least helped to keep premiums down in an otherwise very susceptible profession. Could we in the rail preservation community feasibly imitate this, and would it realistically help us to keep our premiums down, while still meeting reasonable coverage needs?

david_ackerman@yahoo.com

As a whole, we generally do not play well with others and run with scissors a bit too much for the broadly based insurance pool that would be required. Might be worth looking into a group coverage in the entertainment industry which would allow us to partner with theme parks, etc. which offer potentially hazardous rides to the public.

Dave

irondave@bellsouth.net

Has insurance increased greatly for theme parks also? Many operate just a few months a year like tourist RRs and offer many chances to kill people. The big players like Disney probably have no trouble with the cost, but smaller mom and pop parks could be put out of business with large increases. Anyone know?

ryarger@rypn.org

Please - some one from TRAIN or ARM - follow-up on this idea. Maybe we could instill rules to follow and inspections of each insured - if you want to stay in the co-op!

> Please - some one from TRAIN or ARM -
> follow-up on this idea. Maybe we could
> instill rules to follow and inspections of
> each insured - if you want to stay in the
> co-op!

A cooperative insurance group would be only a stop-gap measure. A change in our society's attitude and reversal of the court decisions
that deem no one responsible for his own actions
is going to have to come or history will show that like every great society we found a way to destroy ourselves.
We have mentioned the "Mom & Pops" but there are about 60 major companies on the list a lawyer sent
me that have folded due to Asbestos suits. For instance when Granite City Steel, the company that made the one piece cast steel engine beds, announced bankruptcy there was a big clamor for tariffs on steel imports. No one mentiond that they folded because of law suits.
I wonder if it would awake the public's awareness if every price tag showed what percentage of the
retail price was to cover legal liability?
Jim


rrfanjim@mvn.net

> On a slightly different note, I've been
> wondering for several months why a group of
> individuals couldn't form an insurance
> cooperative, rather like the credit unions
> perhaps. I've come to find out, while
> reading the news paper the other day, that
> Physicians have done just that. Turns out a
> physician's malpractice insurandce is usualy
> providede by one of several physician owned
> and opperated groups. I gather that this has
> at least helped to keep premiums down in an
> otherwise very susceptible profession. Could
> we in the rail preservation community
> feasibly imitate this, and would it
> realistically help us to keep our premiums
> down, while still meeting reasonable
> coverage needs?

Probably not, for one big reason: Money.

This is NOT a large, wealthy, growing industry. It's basically a very loose assortment of mostly small, mom-and-pop outfits that in good years take in just enough money to survive and pay the bills and maybe fix up a few things. By and large, there are few or no wealthy tourist railroads. It would take hundreds of thousands, if not millions of up-front dollars to set up and fund such a thing.

TRAIN has looked at this several times; as an association, it doesn't have even a fraction of the financial resources necessary to do it, and the consensus is that the membership as a whole doesn't, either.

Even if the roads had that kind of money (they don't), would they put in this co-op or invest it in other things that they need to stay in operation and stay solvent, such as FRA 15-year inspections and car overhauls or trackwork or buildings?

Another thing that we often lose sight of is that there HAVE been accidents on tourist railroads and at railroad museums. There have been injuries, there have been fatalities, and ther have been claims and suits. Fortunately, these have been few and far between, but enough to keep the insurance industry aware that this is not a risk-free or even low-risk environment, and they charge accordingly. The relatively tiny size of the industry also means there is only a small pool of rate payers to spread the risks across, and that also helps drive the costs up.

> Probably not, for one big reason: Money.

Just a couple of additional comments from the peanut gallery:

a. Insurance is a state-regulated industry. As a consequence each state sets different, sometimes (often?) conflicting standards. A single policy that can be sold in all states is, for all intents and purposes, impossible to design.

b. Another barrier to "one size fits all" is the very different needs of a low ridership preserved line like the EBT, a high-ridership tourist magnet like Strasburg, and a mainline operator like the Friends of 4449.

c. The "risk pool" is very small - just a couple hundred operators.

d. Not all operators are exemplars. I've heard from some who admit to actively avoiding inspections, and know of several with ill-defined or non-existent training and safety programs. Those operators would not only not be eligible for coverage, but would STILL make coverage more expensive for the remainder (perceived risk).

JAC

Certainly the monetary issue is enormous., and very probably insurmountable, but part of the idea behind an insurance coop was to reduce the possible premium inflation due to perceived risk. I am not familiar with insurance regulaitions outside Missouri, but at least in terms of automotive liability insurance in Missouri a motorist is allowed to be "self insured." This requires the motorist to have a certain amount of money set asside in a special fund which he can then access in the case of a claim. The fund would then need to be replenished. Now, given that the amount required in such a fund is on the order of a half millon dollars or so, obviously in order for such an arrangement to be practicable for tourist railroads and locomotive opperators, the amount of money "in the kitty" as it were would need to be very substantial. Presumably it would have to exceed the insurance policy requirements of the strictest entity. Say if someone is required to carry a 50 million dollar policy, then there would have to be over 50 million dollars held in an account, (in escrow?) for that purpose. On the other hand, is there were no claims, no ongoing payments would need to be made. The reason the insurance industry is able to make a profit is that on the whole, we claim far less than the premiums that we pay. Now some individuals claim more, but the risk is spread over numerous payers. Presumbaly such an account would not need to have the maximum amount to cover all policies completely, but it would need enough to cover a substantial portion of them. (No one thinks that every tourist railroad is going to need to simultanesouly claim the maximum on their policy, but there'd better be enough their to cover a lot.) The insurance industry enguages in risk management by keeping accurate enough statistics to stay as close to that margin as they can, investing the money to make alternate profits, and presumably keep rates low. There must be guidelines covering the amount that one would need to have in the bank to cover policies. It would be intersting to know what a practical minimum would be, and wether or not a group of organizations could meet that. Obviously, the broader the franchise, the easier that would be to do. How do amusement parks mannage the risk on their rail lines, which are usualy steam opperated narrow gauge? (In my experience, anyway, being limited to Six Flags and Disney.)

david_ackerman@yahoo.com

> Certainly the monetary issue is enormous.,
> and very probably insurmountable, but part
> of the idea behind an insurance coop was to
> reduce the possible premium inflation due to
> perceived risk. I am not familiar with
> insurance regulaitions outside Missouri, but
> at least in terms of automotive liability
> insurance in Missouri a motorist is allowed
> to be "self insured." This
> requires the motorist to have a certain
> amount of money set asside in a special fund
> which he can then access in the case of a
> claim. The fund would then need to be
> replenished. Now, given that the amount
> required in such a fund is on the order of a
> half millon dollars or so, obviously in
> order for such an arrangement to be
> practicable for tourist railroads and
> locomotive opperators, the amount of money
> "in the kitty" as it were would
> need to be very substantial. Presumably it
> would have to exceed the insurance policy
> requirements of the strictest entity. Say if
> someone is required to carry a 50 million
> dollar policy, then there would have to be
> over 50 million dollars held in an account,
> (in escrow?) for that purpose. On the other
> hand, is there were no claims, no ongoing
> payments would need to be made. The reason
> the insurance industry is able to make a
> profit is that on the whole, we claim far
> less than the premiums that we pay. Now some
> individuals claim more, but the risk is
> spread over numerous payers. Presumbaly such
> an account would not need to have the
> maximum amount to cover all policies
> completely, but it would need enough to
> cover a substantial portion of them. (No one
> thinks that every tourist railroad is going
> to need to simultanesouly claim the maximum
> on their policy, but there'd better be
> enough their to cover a lot.) The insurance
> industry enguages in risk management by
> keeping accurate enough statistics to stay
> as close to that margin as they can,
> investing the money to make alternate
> profits, and presumably keep rates low.
> There must be guidelines covering the amount
> that one would need to have in the bank to
> cover policies. It would be intersting to
> know what a practical minimum would be, and
> wether or not a group of organizations could
> meet that. Obviously, the broader the
> franchise, the easier that would be to do.
> How do amusement parks mannage the risk on
> their rail lines, which are usualy steam
> opperated narrow gauge? (In my experience,
> anyway, being limited to Six Flags and
> Disney.)

Those are multi-billion dollar companies, and you can bet they have large insurance and self-insurance reserves to cover any eventuality at their facilities, not just railroad-related.

There are various estimates, but if you put all the tourist and scenic lines, mainline operators, dinner trains and museums that have operations together, you might come up with a total of around 150 separate entities. Total industry ridership/visitorship is probably in the 3 million range annually, though even that might be too high.

Many of these are privately-held entities, meaning they don't have to release ridership and income numbers. Even given that, I would be very surprised if this entire industry grosses much more than $15-20 million annually.

It's also an industry made up of fiercely independent entities. It's often very difficult to get them to band together to do anything, other than have a convention, or to get them to agree on anything. IOW, not all of them would join the co-op you are proposing, but for the sake of discussion, let's say they all did.

If the industry as a whole grosses $20 million annually, there is probably on the order of $1 or $2 million left at the end of the year after all the bills are paid. So where do you get the $50 million to establish the co-op fund?? It just ain't there. Who administers this fund? Who decides how to invest the money (which is how the insurance companies actually make money)?

Insurance companies examine the risks and probabilities when they set rates. Higher risks pay higher rates; extreme risks can't get coverage at all. How does that translate to a co-op? IOW, say that one of the operations that John alludes to in his post above wants to join the co-op. They ignore rules and regs and common sense and just skate by. Who tells these guys to shape up or they get kicked out of the co-op because they present an unacceptable risk?

I agree that it's a nice idea, and one that might bear further investigation. But I also believe that we who are so immersed in this stuff sometimes lose our perspective. Since our lives get so entwined with this stuff, we tend to think the whole endeavor is much larger than it really is.

I think the financial health of the industry as a whole is revealed by the many components of it that are always in the fund raising mode to cover this or that crisis or new project or just daily operations; and how many are totally dependent upon volunteer labor and donations and contributions just to exist. IOW, as a whole (noting the exceptions such as a Strasburg or D&S) much of the industry is barely surviving now. I just don't see a source for the millions it would take to set up and operate an insurance co-op.

I hope I'm wrong, but I fear I'm not.

BTW, this is a great, thought-provoking thread.

Perhaps we could cover premiums to a reinsurance company. They are the ones who really take on the risk. They are who the insurance companies buy insurance from. Our printing trade association, Printing Industries of America has done that.

The undertaking boggles my mind when I consider multiple levels of coverage, risk assessment, administration, premium collections and sales & marketing.

wyld@sbcglobal.net

> Thanks, everyone, for responding thoroughly and animatedly to my request for information on what North Americans are up to in trying to deal with the crisis in insurance.
Regrettably, things have not improved for the key operating rail heritage societies here. The State government has decided not to help defray the huge insurance premium increases at Pich Richi Railway and several others. You can read about the Railway and what's happened to it in the attached link, if it goes through OK.

Pichi Richi is a wonderful enterprise. It's 300km north of the capital, Adelaide and run largely by volunteers who trek up to the town of Quorn, were it's based, to do the work. It winds through countryside that many Australians regard as heartland country (ie country of their heart), the Flinders Ranges.
So have a look at their site if you haven't seen it before. Thanks once again for the time and trouble which a number of you have taken to answer my query.
Peter Cahalan


pichi richi railway, south australia
cahalan.peter@saugov.sa.gov.au