As Economy Falters, Claims Increase
in Public-Transit Sector
other transit systems are approaching 40
years old and are beginning to deal with the
challenges of sustaining an infrastructure
that was built at system inception.
BY TERRY C. PFEIFER
ECONOMIC challenges have altered the landscape of every industry— and the public-transit sector is no
exception.
Aon Risk Solutions’
2011 Public Transit Liability
Benchmark Analysis, which
was designed to provide
public-transit risk managers
with a better understanding
of the liability cost of risk,
found that over the last five
accident years Public Transit
Liability costs have been
increasing.
Since 2006 there has
been a 3-percent-average
annual-loss-rate increase,
a 1-percent-average
annual-claim-frequency
increase and a 2-percent-
average annual-claim-severity increase.
In addition, the study concluded that
there are significant differences in the
frequency and severity of liability claims
for bus operations compared to those of
rail operations.
The increases to Public Transit Liability,
while relatively modest, are being driven
by several factors:
J Outside pressures, such as medical-cost
inflation, have significantly contributed to
the increase in Public Transit Liability claim
severity. In addition, many insurance experts
have theorized that the current economic
environment leads to an increase in the
frequency of liability claims of all types.
J Some public-transit risk managers also
speculate that Transit Liability claims
increase as older, more-experienced transit-vehicle drivers retire and are replaced by
less-experienced operators.
J Public-transit-vehicle fleets and
infrastructures are beginning to show signs
of aging. While some transit systems are
more than a century old and have long dealt
with maintaining an aging system, many
$62
$100
$19
$29
2006 2007
LOSS RATE PER 1,000 TRANSIT TRIPS
Limited to $5 Million per Occurrence by Transit Operation Type
$54
$0
$20
$40
$60
$80
$100
$120
$140
$126
$100
$99
$60
$60
$18
transit trip.
These findings can be further explained
by examining the nature of bus operations
compared to rail operations. As buses
interact with pedestrians
and other road traffic,
there is a greater potential
for incidents leading to
liability claims. While these
claims can sometimes be
very severe or expensive,
many others are related
to minor fender-bender
incidents, which drive
down the overall average
Bus Liability claim severity.
On the other hand, rail
operations tend to operate
on dedicated tracks with
little or no interaction with
pedestrians and vehicular
traffic. While there are
sometimes very severe rail occurrences,
these are relatively rare but do drive up the
average claim cost of rail occurrences.
$62 $64
$120 $123
$32 $28 $29
2010 2011
Rail Only
2008 2009
Accident Year
Combined Bus & Rail Bus Only
Aon’s Public Transit Liability Benchmark
Analysis also found that a small number
of severe claims can result in a very large
dollar amount of liability losses. An analysis
of the distribution of Public Transit Liability
claims by dollar value revealed that
95 percent of such claims have dollar
values of $50,000 or less, while a very
small number of liability claims have dollar
values of $1 million or larger.
Aon’s study also showed that while
the average-dollar severity of a Rail
Liability occurrence is higher than a Bus
occurrence, the much higher frequency of
liability occurrences associated with bus
operations is a key driver of the overall
cost of liability claims.
To express these findings numerically:
J Projected 2011 frequency is one
occurrence per 1.075 million rail-transit
trips and one occurrence per 170,000 bus-transit trips.
J Projected 2011 severity is $31,300 for rail
operations and $21,000 for bus operations.
J Projected 2011 loss rate is 2.9 cents per
rail-transit trip and 12. 3 cents per bus-
THE FUTURE OF RIDERSHIP
Effective loss control will become even more
important in the future as public-transit
ridership is likely to continue to increase
nationwide. History shows use of public
transportation has consistently increased—
not only as a result of population growth
but also during times of economic growth.
A strong economy leads to an increase in
commuting workers as well as an increase
in the number of riders who use public
transit for leisure-activity travels. Although
public-transit ridership growth has been
somewhat flat in recent years, significant
increases in ridership are expected as the
economy recovers. NU
Terry C. Pfeifer is a Senior Consultant for
Aon Global Risk Consulting, specializing in
actuarial reserving and pricing assignments for
public transit and other public-sector entities.
He can be reached at Terry.Pfeifer@Aon.com.
