Reducing Total Cost of Risk in Railway Organizations Requires a Holistic Approach to Risk
Railways that effectively integrate risk management and risk transfer processes with safety management systems can often reap financial and operational benefits.
A comprehensive risk management program includes the successful integration of safety management systems with the purchase of insurance to protect against catastrophic events and indemnified losses.
While railways are perceived as one of the safest modes of transportation, a significant accident or natural disaster that disrupts essential railway service can shake the confidence of travelers, shippers, regulators, and surrounding communities. But railway organizations that effectively integrate risk management and risk transfer processes with safety management systems (SMS) can often lower their total cost of risk (TCOR) and ultimately improve their financial results.
Railway organizations that implement a robust SMS process as part of their risk management programs can better demonstrate their enhanced risk profile to insurers, which can favorably affect premium costs and lower total claim payouts not covered by insurance. Railway contracts must be carefully reviewed with regard to indemnification provisions between parties and how insurance policies will respond in the event of a significant loss. Disparate financial capacity of the parties, which is not properly backstopped by assets and third-party insurance, can threaten the organization’s longevity in the event of major loss.
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