Marsh Sees Growing Opportunity in Expanding Rail Industry

Insurance broker Marsh sees great potential in railroads, which are continuing to expand around the world, said Mark Langer, Marsh's global transportation practice leader.

"The passenger and freight rail is a rapidly expanding business not only in America but in the rest of the world," Langer said.

Marsh has recently beefed up its focus on railroads with a new global rail practice, and has hired three industry veterans from two rival brokers to lead it, (BestWire, July 16, 2010). Jim Beardsley, the former leader of Aon's rail practice, as been named global leader of Marsh's new rail practice. Also joining the new practice are Jim Wolfarth and John Raymond. Wolfarth, formerly a senior casualty broker in Aon's rail practice, joins Marsh as senior vice president, casualty. Raymond, formerly a senior vice president from Willis Risk Solutions, joins as senior vice president, property.

Langer said the rail industry is seeing considerable growth globally, and insurers and brokers are rising to meet increased demand for property and liability insurance. For instance, high speed rails are gaining in popularity and are being built around the world.

"The rail initiative is global," Langer said. "But a lot of the issues the railroads face both in operations and construction are similar. Building a bridge in Taiwan is not that different from building a bridge in California."

However, railroads in the U.S. face some challenging liability issues, Langer said. For instance, railroad workers who are injured on the job generally are covered under the Federal Employment Liability Act, not workers' compensation. "It's much different from workers' comp," Langer said. "FELA is a liability, while workers' comp is a benefit."

Also, freight railroads in the United States face the exposure of accidents involving rail cars that haul toxic inhalant hazards. "That forces railroads to buy higher liability limits than other industries," Langer said. "The insurance placement becomes very complex."

One major railroad liability incident took place on Jan. 6, 2005, when a Norfolk Southern freight train with 42 cars slammed into another train parked on a side track n Graniteville, S.C. Three locomotives and 17 cars derailed, including three pressurized tank cars. One of the tank cars was punctured and spewed out a plume of chlorine vapor. Nine people died, 554 were injured, and 5,400 were evacuated within a one-mile radius. The Association of American Railroads estimated that claims of all parties will exceed $500 million, not including extensive environmental remediation costs, (Best's Review, December 2008).

It can also be complicated to get insurers to work together when there's a claim. As many as 20 carriers can be involved on a large liability policy, Langer said. "We're always trying to bring in new capacity on the liability side. It's a process of getting insurance companies comfortable with the liability of railroads," he said.

In Europe, the insurers are facing the challenge of railroads being privatized for the first time. "They've never carried commercial insurance before," Langer said. "How to value the assets on the property side can be a challenging issue. But it's an opportunity for our global rail practice," he said.

Marsh & McLennan Cos. (NYSE: MMC) is the largest global insurance broker, as ranked by 2009 revenue in Best's Review magazine. During morning trading on July 21, the company's shares were selling at $22.67, down .61% from the previous close.

(By Meg Green, senior associate editor, BestWeek: [email protected])