R A I L T R A C K Presentation to Liability Underwriters Group Conference 4 September 2002 Ian Thompson Head of Insurance & Risk Management Railtrack PLC (In Railway Administration)

R A I L T R A C K Summary Overview of industry structure/Railtrack Risk Management processes Key risk statistics Why has there been incidents? Industry insurance arrangements Claims Management Conclusion Discussion / Q&A

R A I L T R A C K Rail Regulator SRA Freight operators Passenger train operating co.s (TOCs) Open access operators e.g. Eurostar Britain’s New Railway Industry RAILTRACK owns the railway infrastructure Other service providers e.g. telecoms Infrastructure maintenance companies (IMCs) Track renewal companies (TRCs) Rolling stock companies ROSCOs Heavy maintenance suppliers

R A I L T R A C K The heart of the railway

R A I L T R A C K Railtrack Owns 20,000 miles of track, signalling and electrification 2,500 stations 90 depots 40,000 bridges, viaducts and tunnels 9,000 level crossings

R A I L T R A C K Railtrack’s Objectives Maintain/improve safety Improve network operation/reliability Maintenance & renewal of infrastructure Plan & execute major capital programmes Heavily regulated Currently in administration

R A I L T R A C K Risk Management Process Corporate Governance Safety risk Management Insurance modelling

R A I L T R A C K Goals/Objectives/Standards Response to crisis Monitor & Control Evaluate & improve plan Assess & identify risks Risk Review Group Corporate Governance (Continuous Process)

R A I L T R A C K Railtrack Has Commitment from board level Risk policy statement A senior level risk review group Framework for risk assessment Top down risks culture initiative

R A I L T R A C K Key Risks Regulatory/political Reputation/finance Multi-fatality accident Failure of suppliers Strategy Key people Operational risks

R A I L T R A C K Safety Role of Infrastructure Controller Railway Safety Case Duty Holder Proactive management of risk to the National Network (including imported risk) Monitoring and review of TOC and FOC Safety Cases Management of capacity, safety & performance Contribution to Railway Group Safety Plan

SAFEX ZONE COMMITTEES ENVIRONMENT CATASTROPHY RISK EFFECTIVENESS PEOPLE SAFETY DEVELOP CAPABILITY IMPLEMENT STANDARDS SYSTEM SAFETY SAFETY MEETINGS CONTINUOUS IMPROVEMENT SAFETY TRAINING COMMUNICATIONS PRODUCTION AREA CO-ORDINATORS MANAGEMENT ALL EMPLOYEES CONCEPT PRIORITIES STRATEGY RESOURCES COORDINATION AUDIT EVALUATE EXPERTISE DESIGN COMMUNICATION LEADERSHIP BOARD ORGANISATION FOR SAFETY

Contractor Assurance LinkU p Assuranc e Case H&S Plan Monitoring and Audit Programm e of Audit Database of informatio n Key Performance Indicators Analysis on Contractor Performanc e Action by C&S on Contracto r RAILTRACK

Insurance Modelling Modelling of Key insurable exposures Risk Management Surveys EMLs- Property £375m -Business Interruption £200m -Liability £140m

R A I L T R A C K Key Risk Statistics Train Accident Precursor Indicator SPADs TPWS risk reduction and rollout Track Quality Broken Rails Maintenance and Renewal Spend Train Delays

Train Accident Precursor indicator. Accident Precursor Data 2001/2002 PrecursorRisk weightingP1P2P3P4P5P6P7P8P9P10 Category A SPADs 32.84% Level Crossing Misuse22.84% Broken Rails12.86% Irregular Working8.31% Rolling Stock Failures8.00% Environmental Factors6.07% Total90.92%

R A I L T R A C K Annual Category ‘A’ SPADs

R A I L T R A C K TPWS Scope TPWS is designed to reduce the consequences of a signal passed at danger (SPAD) and will be fitted at vulnerable locations on the network in accordance with the Railway Safety Regulations, This will involve fitting: Around 11,000 signals Over 700 buffer stops Approximately 2,700 permanent speed restrictions Signals complete and operational by end of 2002 All fitments complete and operational by 1 January 2004

R A I L T R A C K TPWS Benefits TPWS will prevent over 70% of accidents due to signals passed at danger. TPWS will also reduce the risk of: -Derailment due to train over speeding -Collision with buffer stops TPWS will save an average of 1.6 lives per year

R A I L T R A C K TPWS Implementation 8298 signals commissioned (77% complete) 446 buffer stops commissioned (66% complete) TOC progress on their fleet installation 65-70% complete TPWS is being successfully delivered to programme

R A I L T R A C K Absolute Track Quality

R A I L T R A C K Number of Broken Rails on the National Rail Network per Year

R A I L T R A C K Railtrack Spend on Maintenance & Renewals

R A I L T R A C K Railtrack Delays by Week 2001/02

R A I L T R A C K Summary Lowest SPADs on record SPAD risk will reduce further with TPWS rollout Track quality 50% improvement Reduced broken rails Increased maintenance & renewal spend –ALL DURING A PERIOD OF SUBSTANTIAL GROWTH IN TRAFFIC

R A I L T R A C K Why has there been incidents? The incidents Comments

R A I L T R A C K Recent Railway Incidents Watford8 August 1996 Southall19 September 1997 Ladbroke Grove5 October 1999 Hatfield17 October 2000 Heck28 February 2001 Potter’s Bar10 May 2002

R A I L T R A C K Comments A “risk free” railway is not possible Assets/Structure inherited at privatisation/change Incident frequency has not increased Incident costs have increased – inter- industry costs Reputation/litigation risk SRA 10 year plan / Network Rail

R A I L T R A C K Industry Insurance Arrangements SRA requires £155m liability cover TOCs/Contractors buy through industry facility Railtrack buy stand-alone cover Is there a better way? Long term relationships? Management of Contractors

R A I L T R A C K Current Difficult Areas Small Contractors Employers Liability Professional Indemnity Good claims record – a problem of perception rather than reality

R A I L T R A C K Railway Claims Management (1) Claims Allocation and Handling Agreement (CAHA) CAHA objectives - Ensure claimants not prejudiced by disaggregation - minimise industry costs CAHA principles- pre-allocated liability for TP &EL claims below threshold - inter-industry claims restricted for property damage and consequential loss. CAHA process- early appointment of “Lead Party” to manage incident /claims - Strategy /authority agreed with “Potentially Liable Parties” - Allocation of liability agreed later through internal industry dispute mechanism or court

R A I L T R A C K Railway Claims Management (2) CAHA Benefits:- Pro-active response Industry cohesion Single point of contact Reduce industry claims handling / legal costs Dirty linen not washed in public

R A I L T R A C K Overall Conclusions Extensive industry effort to manage risk Improving key risk statistics Incident frequency no worse Consider alternative insurance structures Address poor perception of railways Pro-active management of claims Now is a good time to underwrite rail