Federal agency believes that current insurance policies are unable to account for the cost of major train crashes and derailments
The U.S. Department of Transportation has released a statement noting that insurance policies covering railroads that transport oil may not be sufficient. The statement suggests that these policies are unable to account for the costs associated with crashes and derailments of oil trains. Last week, the federal agency proposed new safety rules that would require railroads to hold a higher level of insurance coverage, which may be good news for the insurance industry.
Insurance industry continues to juggle the problems associated with oil
The insurance industry has been having trouble when it comes to the transportation of oil recently. Political tensions in some parts of the world have put the market in a sort of limbo. In other parts of the world, providing coverage for the transportation of oil is becoming more expensive. While most of the industry can manage these costs somewhat effectively, the organizations responsible for the transportation of oil may soon find that they cannot afford the coverage that they need.
Major incidents can cause major financial damage
Transporting oil by land is a risky practice that can have expensive consequences. In 2013, an oil train derailment in Quebec, Canada, called into questions the safety of transporting oil via railroad. The derailment caused an estimated $1 billion in damages, with the company responsible for the oil train declaring bankruptcy shortly after the incident. Currently, the maximum level of coverage available on the rail insurance market is $1 billion per carrier, per incident.
Federal agency has trouble determining how often major incidents occur and how costly these incidents actually are
The Department of Transportation notes that conventional coverage is more than suitable for most accidents, but any major derailment or crash will exceed the financial capabilities of most policies. The agency notes that determining how frequent these major disasters occur is difficult to do. This is because of data limitations and the agency’s relatively slow process of collecting information regarding the transportation of hazardous materials.