Insurance risk

Heavy rail Heavy rail

Description (What is the Risk)

The risk that insurance for particular risks is or becomes unavailable.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

Network Rail is required to take out specified insurance cover under the terms of its Network Licence.

The Manufacturer will be required to take out specified levels of insurance under the MSA and any maintenance contract, to include all risks property insurance, employers' liability insurance, and third party public and product liability insurance. Failure to insure will typically be an event of default.

Mitigation Measures (What can be done to minimize the risk)

Network Rail's Network Licence is enforced by ORR.

Government Support Arrangements (What other government measures may be needed to be taken)

None.

Comparison with Emerging Market

In developed market transactions in the heavy rail sector, each party usually takes the risk of its own insurance.



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Description (What is the Risk)

The risk that insurance for particular risks is or becomes unavailable.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

Where risks become uninsurable there is typically no obligation to maintain insurance for such risks.

If an uninsured risk event occurs, the Private Partner will typically have to bear this risk.

If the uninsured risk is fundamental to the project (e.g. physical damage cover for major project components) then the Private Partner may need an exit route (e.g. force majeure termination) if it cannot reinstate the project on an economic basis.

Mitigation Measures (What can be done to minimize the risk)

The Contracting Authority and Private Partner should consider whether insurance might become unavailable for it given the location and other factors relevant to the project.

Government Support Arrangements (What other government measures may be needed to be taken)

The Contracting Authority may need to consider whether it stands behind unavailability of insurance, in particular where this has been caused by in-country or regional events or circumstances.

Comparison with Developed Market

On emerging market transactions, the Contracting Authority typically does not take the risk of uninsurability arising on the project, although there are good grounds to say that it should do so if the Private Partner has no protection for the consequences of a natural force majeure that becomes uninsurable and if Contracting Authority wishes for the Private Partner to continue with the project.

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