Nationalisation in all but name fails to convince

Windows XP; Insurer's honour
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The Independent Online

Nationalisation without compensation is not considered a pretty concept in these capitalist correct times, which is why Stephen Byers, Secretary of State for Transport, is so desperately keen that his not-for- profit trust, or company limited by guarantee (CLG) as he now prefers to call it, should not be seen as such. Yesterday Mr Byers had yet another go at trying to convince us all that the CLG is the right approach. It scarcely needs saying that he failed utterly.

The CLG will be a private-sector company run on purely commercial lines but without shareholders and consequently without the need to pay dividends, he tells us. There will be no problem with finance, he insists, since in practice lenders will regard it as a very low credit risk and a sound basis for their investment. Transparent economic regulation of the railways to ensure that passengers and train operating companies get value for money will continue.

All this is technically true, except that it is not what's actually going on. Lenders will lend to the CLG only because the Government stands full square behind it. They won't lend on any other terms and even so, they'll charge more for lending to the CLG than they would direct to the Government. From this perspective, the company might as well be in the public sector. As an attempt to keep the railway's borrowings off the Government's books, the whole thing is little more than a sham.

The idea of continued economic regulation is also a joke. Since the shareholders have already been dispensed with, there's no one to take the financial pain of failure to deliver on efficiency and service except the Government itself. If the regulator tries to impose penalties, it will be taxpayers and passengers who pay them. What's proposed is a return to the bad old days of "We're getting there" British Rail, only without the disciplines and incentives of the private sector. BR never did arrive.

Railtrack was a disaster. No one's quarrelling with that. But let's not try to pretend that the CLG is something it's not.

Windows XP

Microsoft didn't want to be accused of poor taste, so post the atrocities of 11 September it has scaled down the hype and razzmatazz that would normally surround the launch of its latest operating system. None the less, tomorrow's global launch for Windows XP (which stands for Xperience, to distinguish it from previous upgrades) promises to be quite an event. In total, Microsoft and its partners in the personal computer industry – Intel, Dell, Compaq and others – are budgeting for at least double in promotional spend as went on the phenomenally successful launch of Windows 95, making it one of the most expensive product launches ever. And naturally they are hoping for a similar effect.

The Windows 95 launch lifted the curtain on an extraordinary and explosive period of growth not just in the PC market, but in the technology sector more generally. If any event could be said to have marked the start of the technology boom of the late 1990s, that was it. It also kick started the great public policy debate over Microsoft and its "monopoly" of the operating system market. Well, time has moved on, and today it's a changed world we live in. In the US, the PC market is in ragged retreat, the US Justice Department has abandoned its assault on the Microsoft monopoly and the technology boom has turned into an all consuming bust.

In such circumstances, is it likely that the launch of "just another" Windows upgrade is going to capture the public's imagination in the same way as the original Windows 95 launch did? Microsoft and others are plainly hoping so. Indeed there is a real sense of anticipation in the industry. Here at last is a product that might shake the market out of its present stupor.

Windows XP is billed as much more than just another upgrade. There are some real innovations in the field of interoperability, often described as the last great frontier of software development, and even among Microsoft's enemies, of which there are still many, the product has been generally well reviewed.

Whether any of this is enough to kick-start such a depressed market is anyone's guess. In the business market, IT budgets are almost universally either frozen or are being cut sharply. And in the consumer market, technology fatigue remains the predominant mood. People are going to take a lot of convincing that Windows XP is such a vital advance that it makes it worth buying the upgrade or splashing out on a new PC.

Microsoft's history has tended to be one of small quantitative and qualitative upgrades interspersed with the occasional big leap. It remains to be seen whether Microsoft XP is enough of the latter to generate another period of strong growth for the PC industry.

Insurer's honour

The terrorist destruction of the World Trade Centre in New York is fast turning into a loss adjuster's nightmare. Gone are the days of gentleman underwriters like Cuthbert Heath who on being told of the San Francisco earthquake of 1906 cabled his local representative to say; "Pay all our policyholders in full, irrespective of the terms of their policies". Today a much more hard nosed approach reigns, and given the scale of the catastrophe, underwriters seem to have determined to nickel and dime it every step of the way.

Already a monster of a dispute has opened up over the structural insurance on the twin towers themselves. Swiss Re, which has the biggest exposure to the towers, wants to treat the loss as a single event. The property's leaseholder, Larry Silverstein, insists that it is two events, or separate aircraft collisions for each tower. There's quite a difference.

The towers were insured for only $3.5bn. If this was one event, then that's all Mr Silverstein would be entitled to. If it's two then he gets double. In Swiss Re's view, Mr Silverstein and his brokers under-insured the buildings and that's their look out. Mr Silverstein accuses Swiss Re of attempting to wriggle out of its obligations. Years of litigation is promised on the twin towers alone, and they are just the tip of the iceberg. On top of that comes the loss of life, damage to health, the surrounding buildings, the four hijacked Boeings, and all the other collateral damage. Many relevant policies are linked through third part liability, so don't even begin to think about who's responsible for what.

To be fair on the insurers, this is collectively likely to be the biggest loss damage claim ever lodged, and for some the size of the payout could make the difference between survival and insolvency. What's more, past experience is that it often doesn't pay to do the honourable thing and just pay up in full. When Commercial Union announced that no loss adjusters would be required for any claim under £1,000 stemming from the 1987 hurricane in the south of England, the reinsurers refused to cough up on the grounds that CU was asking to be ripped off. There was something in it too. You wouldn't believe how many claims for £999 started to roll in.

Even so, this is different. The scale and tragedy of the disaster demands that insurers take the most sympathetic and lenient approach possible when settling claims. Otherwise people are going to start to wonder what's the point of insurance at all. It's the most important test the industry has ever faced, and it is vital that insurers don't fail it.