Management Consulting

U.S. freight and commuter rail industries are currently grappling with significant liability and property risk capacity issues that threaten their operational viability. For freight railroads, the challenges are exacerbated by the threat of nuclear verdicts and the increasing severity of natural catastrophes, particularly flooding, which has been identified as a primary concern. The derailment of a train carrying hazardous materials in East Palestine, Ohio, in 2023, which resulted in a $600 million settlement, has heightened the anxiety among global insurers regarding rail liability, despite a general decline in accident rates. In the commuter rail sector, agencies are facing a lack of excess liability capacity, which is forcing them to purchase coverage up to their limits to comply with third-party vendor requirements. This situation is expected to worsen in 2026 when the U.S. Congress is set to increase liability insurance caps, potentially by $70 million. The current cap stands at $323 million, and the anticipated increase could lead to significant operational disruptions if agencies cannot secure the necessary coverage in a contracting market. To address these niche issues, freight railroads are exploring various risk mitigation strategies, including strategic repositioning of assets to avoid business interruption during natural disasters. However, this often leads to network disruptions and potential losses. Commuter rail leaders are advocating for legislative support to establish a national commuter rail liability pool and are seeking an extension of the implementation window for new coverage requirements from 30 days to 365 days. This would provide them with the necessary time to secure additional coverage and avoid service suspensions. The outcomes of these efforts are critical, as the freight rail sector is responsible for transporting over 1.6 billion tons of raw materials annually, while commuter rail agencies provided 316 million trips in 2023. The successful implementation of these tailored solutions could enhance the resilience of both sectors, ensuring their continued contribution to the U.S. economy amidst escalating risks.