Transport Committee on May 15th, 2014

[Jeff Watson, Conservative, Essex, ON]

To the CTA, the description of how insurance happens makes it sound more like what we'd call a homeowner's policy. You have insurance and a high deductible. I'm glad you clarified what self-insurance really, effectively, acts like.

Now, railway companies have told us that, based on the pools of funds available for rail insurance, they have no more capacity to take on more insurance. Does CTA share that? How much insurance is available to railway companies globally for that purpose? Also, what level should the liability be, in terms of how much insurance they carry?

[Nina Frid]

I will try to address each of your questions. There were several.

In terms of current levels, class I members carry insurance in excess of $1 billion. That is quite a significant amount, and is considered by the insurance industry overall quite sufficient.

What we heard through the consultation is that the market for short lines is a more difficult issue and that all the insurance available for railways for third party liability is purchased by those in class I in North America. But I must also clarify that the access—

[Jeff Watson, Conservative, Essex, ON]

You mean that they have no more ability to get any more insurance, should we require more of them. Is that a fair statement?

[Nina Frid]

That's what we hear.

[The Chair, Conservative, Larry Miller]

Mr. Watson, you're out of time.

[Jeff Watson, Conservative, Essex, ON]

Okay. That's what you hear.

[Nina Frid]

That's right.

[Jeff Watson, Conservative, Essex, ON]

You don't know for a fact whether that's true.

[Nina Frid]

We don't know for a fact, because we don't have jurisdiction over insurance companies. We've solicited inputs and submissions. That's what we have.

[The Chair, Conservative, Larry Miller]

Okay. Thank you.

Mr. Braid, you have seven minutes.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you very much, Mr. Chair.

And thank you to all our presenters for being here this morning

Both the FCM and the CTA have provided excellent and very thorough presentations on the topic of the day, which is third party liability insurance and how we improve that regime as well as the compensation regime. As you know, Transport Canada is conducting a review of the overall third party liability insurance and compensation regimes, so your input is very helpful and timely.

Ms. Frid, I want to begin with a question for you. You mentioned in your presentation that currently third party liability insurance that railway companies hold is confidential or proprietary. Could you just help us understand why an insurance policy would be confidential or proprietary?

[Nina Frid]

The railways provide a lot of detailed financial information to the agency for a number of purposes, not just for the purpose of establishment and analysis of their liability coverage and their operations. The agency develops costs, rates, and so on, so we have access to railways' detailed financial information. The railways have a right to claim confidentiality over this information because releasing it, they claim, would harm them commercially. They compete within the North American context, and that's why they require us to keep this information confidential.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Generally speaking, what percentage of the overall policy is this self-insured retention amount? Do you know what that is?

[Nina Frid]

I brought some notes to help me answer the question. I don't have the percentages, but I can tell you that for those in class I that hold insurance in excess of $1 billion, the self-insurance retention percentage is substantial. It could range anywhere from 10% to 25%.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Okay. That's helpful as a clarification. Thank you.

Ms. Quinlan, I want to start by asking you if you could sort of boil things down for us. You've made a very detailed presentation and proposal.

In essence, with respect to third party liability insurance and compensation, what is different between what exists today and what you're proposing?

[Pauline Quinlan]

I think in view of what happened in Lac-Mégantic, where we discovered there was not sufficient coverage on the part of those companies that were not classified—the number one companies like CN and CP—we feel there has to be a responsibility there to cover incidents. But what we are saying today is that we have to have the means to ensure that the local citizens, like those in Lac-Mégantic, who are paying for this disaster, or any other level of government, should not have to do that.

That's what we are saying. We are saying to our people who are working for us at FCM, find a way to make sure that if anything like this happens again, the responsibility would lie with the companies that are transporting and also with the manufacturers. We stated that in our presentation. There is a responsibility that has to be shared, but it should not be at the cost of the citizens.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

That was my second question.

Could you elaborate on that? Why do you believe this notion of insurance should be financed by the entire continuum? Why is that important? And what would this look like?

[Pauline Quinlan]

Well, maybe I should ask Stéphane to be more technical and answer that part.

[Stéphane Émard-Chabot]

In a nutshell, what it boils down to is the test of adequacy. Adequate for what? As we embarked on this, we came to the realization that the system that is in place and managed by CTA could be improved on a few fronts, but it is adequate for day-to-day operations.

There is nothing in place for catastrophic incidents. Why should this be financed by the whole continuum? It's simply because this is a societal risk. The transportation, the use of dangerous goods in our society, is something that we all partake in, we all benefit from. The risk is created by the entire sector, not just by those carrying the goods. In fact, those carrying the goods will probably tell you they don't know how their goods are packaged necessarily. They can't be 100% sure that the shipper or the importer or the broker is telling them the truth as to what is in there, or what the qualities or characteristics of those goods are. It makes sense to us, from a policy perspective, to have everybody who contributes to the risk—on the polluter pay or risk pay principle—to contribute to that fund in some fashion or to recognize that they have a role to play.

There's a policy reason there, and there's a financial economic reason as well. If you put this entirely on the carrying sector, the railways themselves, most of the short lines will not be able to carry that burden. They can only purchase what they can purchase on the market, and the market will only go so far. The market will not cover Lac-Mégantic. The market will not cover Mississauga, or heaven forbid, the next one that will happen in 40 years. If we agree as a community that this is not something that should be carried by the taxpayer and the public purse, which is what's happening in Mégantic, then we have to create a system that is bearable to the sector, and spreading out the pain seemed to make the most sense economically, and it has a solid policy basis as well.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

You mentioned toward the end of your presentation, Ms. Quinlan, an emergency fund. What would the role of the emergency fund be? Who would fund that?

[Pauline Quinlan]

I'll ask Stéphane to answer.

[Stéphane Émard-Chabot]

Very quickly, again, this was something that came out of the marine transportation improvement recommendations, a report that came out not too long again, and that is immediate cash for first responders to be able to do their work. For a small municipality like Lac-Mégantic, the reserves are not massive, so when you have to respond—again, we're only talking about catastrophic incidents—to a catastrophe, as a small community, you don't have the financial resources to start writing cheques to all the people who are there. It's that simple. It's a fund that can be accessed immediately by public bodies that need it, to shelter people, to move people, to respond to the emergency.

It is part of, it is not in addition to, that fund. We're just saying that if we create a fund like this, there has to be a mechanism whereby the public bodies that are responding to a catastrophe can access funds without waiting for a long process.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Just to clarify, who funds the fund?

[Stéphane Émard-Chabot]

Again, that's part of the continuum. It's part of the catastrophic fund.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

And sharing the risk across the continuum.