Reinsurers facing big third party claims from motor insurers are looking to limit their exposure by imposing restrictive conditions. And the lawyers are becoming more inventive in blocking payouts. Claire Veares explains
The Selby train crash in February last year left Fortis Insurance with the biggest motor claim to date in the UK. By the time claims are added up for death and personal injury, damage to rolling stock and the track, and for lost business, the total could be £50m. Fortis is responsible for the first £1.5m of this, with its reinsurers, principally Munich Re, liable for the rest.
But while the chances of such a large claim happening again are slim, steps are already being taken to limit any possible future exposure. Insurers are legally obliged to provide unlimited third party cover on motor insurance policies in the UK, so limiting third party claims on future polices is not an option for them. The reinsurers, however, are not shackled by such constraints and are already looking to ensure that if such a large claim happens again, responsibility is shared, thus leaving insurers with far greater exposure to losses.
Munich Re says providing unlimited third party cover has always been a problem for reinsurers and, after Selby and other catastrophic losses incurred in disasters at Mont Blanc and the St Gotthard tunnels, it has reviewed its exposure to unlimited third party motor policies.
The St Gotthard tragedy occurred in October 2001when two lorries collided in the Swiss Alpine tunnel killing ten in the subsequent fire. The Mont Blanc disaster in 1999 was the result of a lorry catching fire in a tunnel linking France and Italy, killing 39.
David Sanders, partner with actuary Milliman, confirms that reinsurers are restructuring their motor contracts. "We have seen reinsurance programmes which were, say, in excess of £1m being broken into three contracts." (This would be a change from the current system of one reinsurer handling a single contract. So in the future, for example, three reinsurers would each be responsible for paying out at different levels of the claim. The first would be responsible for, say, up to the first £20m, the next from £20m to £30m and the last reinsurer would come in if the claim exceeded £30m.) This cost will eventually fall on the motorist.
The road tunnel fires at Mont Blanc and St Gotthard are compounding the effects of Selby on reinsurance. "The motor market has not priced itself for this level of losses, and with the globalisation of reinsurance, the losses will be spread throughout the European market," he says.
Most motor insurers are still negotiating late renewals for their reinsurance and are naturally tight-lipped about price movements and changes to terms and conditions.
A spokeswoman for Norwich Union says: "We're still talking to reinsurers about the effects of various events of recent months, so it's too early to say what the effect on motor and other insurance is. Once we have finished our negotiations with reinsurers we will be able to say what the effect will be."
But an Association of British Insurers (ABI) spokesman denies that it has become harder for motor insurers to get reinsurance. He was not aware of any ABI motor insurance member having problems getting new reinsurance contracts.
If other reinsurers are following the lead of Munich Re (and there is no reason to doubt this), motor insurers will be more selective about paying out and dipping into the reinsurance layer.
Sanders says: "What could happen is that, for large claims, insurers become more reluctant to accept liability, particularly if the vehicle does not comply with the cover.
"Examples would be if a vehicle were being used for business when not insured for it, or if the driver were guilty of a serious offence such as drink driving."
He says if the insurer was successful then potential claimants may have to rely on the Motor Insurance Board for a payout or have no insurance to recover from.
Lawyers are also looking at shifting risk. Jeff Stagg, divisional director GAB Robins liability division was the loss adjuster on the Selby case. He says lawyers for motor insurers do try to shift the blame from their policyholder to the railways, even going as far as suggesting that the train should have swerved to avoid the accident. Another accusation thought up by lawyers is that the train was travelling faster than the range of its headlights. Stagg says this completely misses the point of why trains have headlights. "They are for the train to be seen, not for it to see other vehicles," he says.
As well as railway companies, those responsible for the layout of the road may also find themselves subject to the attention of insurance company lawyers. According to Stagg, local authorities and transport engineers could face charges of failing to ensure the safety of road users, as insurance companies seek to limit their payouts.
While the Selby crash may have been a big event for motor insurers , many think its impact is outweighed by other factors.
Lloyd's spokesman Adrian Beeby says: "The reinsurance situation will not be about Selby, it will be about the World Trade Centre."
Stagg says that if the amount paid out for Selby is compared with the amount lost each year in motor insurance fraud, it really doesn't look such a large amount.
He says: "Fraudulent claims versus Selby. No contest."
Although the sequence of events at Selby was described by the Health & Safety Executive as "not easily foreseeable", a surprising number of vehicles do end up obstructing railway tracks.
In the three years leading up to the Selby crash, the executive's figures show that there were 79 incidents of road vehicles blocking railway lines at places other than level crossings. Motorists losing control of vehicles accounted for 31 of the obstructions, just ahead of "criminal intent/vandalism" which caused 30 incidents. Trains hit vehicles on ten occasions.
Railtrack is responsible for ensuring that lines are safe for trains to use, while the Highways Agency oversees the construction and maintenance of motorways and major roads. The barriers on the M62 at the point where Gary Hart's vehicle left it were found to comply with all safety regulations.
But in June last year, in the light of the Selby crash and a number of other incidents, the Highways Agency set up a working group to review standards for nearside safety barriers on major roads.
But this still leaves unexamined the hundreds of places where minor roads cross railway main lines.
There is a greater likelihood of an accident at level crossings than that on normal track. Jeff Stagg of GAB Robins says trains trigger the crossing lights and barriers half a mile away. Four seconds later the train can be at the crossing and if something was still on the crossing the train would hit it.