From the February 20, 2012 issue of National Underwriter Property & Casualty • Subscribe!

As Economy Falters, Claims Increase in Public-Transit Sector

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:

  • 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.
  • 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.
  • 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 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.

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:

  • Projected 2011 frequency is one occurrence per 1.075 million rail-transit trips and one occurrence per 170,000 bus-transit trips.
  • Projected 2011 severity is $31,300 for rail operations and $21,000 for bus operations.
  • Projected 2011 loss rate is 2.9 cents per rail-transit trip and 12.3 cents per bus-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.


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.


About the Author

Terry C. Pfeifer

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


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