Business Interruption – FCA test case

For information about the outcome of the FCA’s test case into how insurance policies respond to business interruption claims as a result of Covid-19 please visit this page.

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Rail

Following years of disruption, Transport Secretary, Grant Shapps announced last year that rail company Northern would be brought under government control, this took effect from 1 March 2020. Shapps claimed that passengers had "lost trust in the north's rail network", with operator Arriva Rail North commenting that it "understood the government's decision", but maintaining that problems had been largely due to "external factors" such as rail infrastructure. Northern passengers have struggled with services since new timetables were introduced in May 2018, and punctuality and reliability problems have continued to hamper operations.

Northern has experienced a number of problems in recent years, including widespread cancellations and delays after the introduction of the new timetables. There have also been delays to infrastructure projects, strike action and problems associated with an ageing fleet of rolling stock.

Shapps stated, “This is a new beginning but it is only a beginning. Northern’s network is huge and complex and some of the things that are wrong are not going to be quick or easy to put right.” He added that the current privatised model was not working, saying: “We know change is needed and change is coming.” One possibility is that Northern is split into two separate franchises.

The problems, however, are not confined to one franchisee. The future of South West Railway is in doubt after the First Group-MTR joint-venture said it was running out of cash, with it receiving a significant cash injection from the respective parent companies. Again, the franchise has struggled with poor punctuality and reliability, combined with slower-than-expected revenue growth and a series of strikes over the use of guards on trains.

In a written statement to parliament, Shapps said the company’s recent financial statements indicated that the franchise, which began in August 2017 and stretches from London to the Surrey commuter belt, Bournemouth and Exeter, “is not sustainable in the long term”. Questions also hang over the TransPennine Express and West Midlands Trains franchises.

While the industry waits for the results of the Williams Review, the signs are that new performance-related train contracts as found with Merseyrail, Southern and the London Overground, could help to put less risk on the train company, a system similar to a nationalised railway, but with private companies still having a major role to play. This system has been shown to work well in mainland Europe, and could provide a way forward after the Williams Review.

Technology is also helping the rail sector to evolve, and put measures in place to deal with overcrowding and capacity issues. But the implementation of new signalling systems and trains, and the adaptions to existing assets and processes needed to incorporate them, will take time and money. The issues are often around the integration of these new technologies into infrastructure that has existed for decades.

From a business perspective, impending change creates uncertainty, and operators need to ensure that they’re covered. If software systems, for example, aren’t rigorously checked before being pressed into use, and they cause problems on the line, how do you protect yourself?

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Steve Medhurst 1600X900 (002)

Steve Medhurst

Global Rail Industry Specialist Lead

steve.medhurst@uk.rsagroup.com