Railroad Rolling Stock and Mobile/Fixed Medical Equipment Insurance Coverage Explored
NEW YORK, July 15, 2009 - Underwriting esoteric insurance coverage is one of the most compelling challenges facing the inland
marine underwriter because these lines tend to be niche market or specialist driven. However, this does not mean an underwriter will
not be offered such exposures. In particular, two such areas were reviewed - railroad rolling stock and mobile and fixed medical
equipment. These two classes were the most requested topics to be covered from the Inland Marine Underwriters Association (IMUA)
membership at their 79th Annual Meeting in Tucson, AZ.
Opening the discussion with some demographic information, James Cunningham, Vice President and Manager, Markel Railroad Division stated
that railroads move 43% of total freight, while trucks move 30%, pipelines 14% and waterborne 13%. "Based on ton-miles - the weight of
a shipment times how far it travels - railroads are responsible for more freight movement in the United States than any other type of
transportation," he said.
Mr. Cunningham noted that there are more than 140,000 miles of railroad tracks in the U.S. and more than 30,000 in Canada and Mexico.
There are roughly 565 different freight railroads in the U.S., and other 40 or so in Canada and Mexico. "Most roads that trucks use
are paid for by the government using tax dollars. By contrast, most rail tracks are owned and paid for by the railroads themselves,"
said Mr. Cunningham. And these freight railroads employee about 180,000 people who are responsible for moving about 38 million rail
cars of freight each year.
Mr. Cunningham explained that there are three classes of railroads, as defined by the Surface Transportation Board, the successor to
the I.C.C. Class I which are $346 million and over; Class II, ranging from $40 million to $346 million; and Class III, less than $40
million. He warned the attendees to beware of Class I railroads, "They can kill you, even if there is a $10 million deductible."
Focusing on shortline and regional railroads, Mr. Cunningham noted that the American railroad system started with shortlines. "They
generally have less than 500 miles of track; operate in a limited regional area; have less than $40 million in annual revenue; and are
mostly tied to one to five local industries."
He said that in the 1980’s there were approximately 225 shortline railroads, today there are roughly 600. Locomotives are mostly diesel
and their values can vary from $25,000 to $3,500,000.
Shortline rolling stock consists of:
Mr. Cunningham went on to note that the major exposures to loss in underwriting railroads include intersection accidents; derailments;
losses from fire; and natural disasters including flood, wind and earthquakes. He then told the IMUA attendees that the three most
important characteristics to evaluate are track condition i.e. what are the current conditions; what the company’s budgeted maintenance
allowance is; and what is their inspection program, e.g. self-inspection or the results of the F.R.A. inspections. "It is also imperative
that one evaluate the engine(s), the rolling stock and related equipment maintenance records. An informed underwriter will also need to
look at the number of grade crossings (both protected and unprotected); bills of lading used; foreign rolling stock owned; and rules of
interchange." he said.
With respect to claims, he concluded, "You must engage a specialist. Claims cannot be handled by the ‘generalist’ company property/inland
adjuster.
Switching tracks, the next part of the niche market review dealt with the perils and pitfalls of underwriting mobile and fixed medical
equipment. Darren Vianueva, President & Chief Operating Officer of CRG Solutions and James C. Wilson, President, Financial Risk Solutions,
handled this segment.
Mr. Vianueva began by identifying the marketplace for both fixed and mobile medical equipment which included the integrated delivery network
(IDN); hospitals, physician practices; and mobile clinic services.
"The trend in healthcare equipment has increased dramatically primarily due to the rapid evolution of high-end technology," said Mr. Vianueva.
He pointed out that number of devices per bed over the past 30 years has jumped from about eight to over 20. The lifecycle of large-scale
medical devices today is approximately three years, with the exception of personalized medical devices, which is 18 months.
The fastest growing sectors in the marketplace are mobile clinical services which include computed tomography, MRI, nuclear medicine, pet and
lithotripter. "These are heavy, large, delicate devices and represent a higher potential/risk for claims," noted James Wilson.
Mr. Vianueva stated that policy coverage language is a major underwriting consideration especially in a marketplace where there is rapid new
technologies constantly emerging. "One must consider whether the insurance policy will cover the same technology or newer, emerging
technologies; used equipment or new equipment; and whether or not the claim is caused by operator error."
Repair vs. replacement vs. what the client wants, he notes, is another key consideration in the underwriting process.
When there is a claim, Mr. Vianueva points out, prompt communications is imperative. That communications must be handled by individuals with
the right expertise as medical technology is not generally a generalist adjustor’s core expertise. Of all the things to note, he highlighted
four key issues to take into consideration - evaluation of events leading up to the claim; evaluation of the business interruption impact;
specific expertise based on the technology; and the niche solutions opportunities that are involved within a unique and ever-evolving industry.
He opined that if a repair of a medical device is required, the underwriter must make a rapid assessment of the repair proposal. "This is
where the adjustor’s expertise is needed, as the customer has no incentive for repair costs. In fact, depending on the claim, a temporary
solution may be needed."
On the other hand, if replacement is needed, Mr. Vianueva points to issues that need to be taken into consideration, such as de-installation
coordination and potential salvage. Also important is the new equipment acquisition process as the industry has a limited amount of suppliers.
In their concluding remarks, Mr. Vianueva and Mr. Wilson discussed the typical causes of losses to equipment such cardiac catheterization rooms;
MRIs; specialty digital X-Ray rooms; and mobile coaches. "The most frequent causes of loss for fixed and mobile equipment include water damage,
electrical disturbance, fire and weather," Mr. Wilson points out. "A typical large loss can be between $250,000 and $3,000,000. That is why it
is important to know the manufacturer’s warranties and whether or not the loss was a direct result of operator negligence, which is not covered
in usual warranties."
IMUA is the national association for the commercial inland marine insurance industry. IMUA serves as an industry voice of its member companies
representing approximately 90 percent of all commercial inland marine insurers in the U.S. The Association provides its members with comprehensive
educational programs including research papers and bulletins, industry analysis and live/web seminars. IMUA was founded in 1930.
Mr. Cunningham noted that insurance forms can vary from an ISO rolling stock issuance to unique manuscript to company forms. "A unique
industry anomaly is that these coverages are excluded by most property and inland treaties," he said.