New insurer established ready for bus sell-off

LONDON Transport is diversifying into the insurance industry with the launch next month of Routemaster Reinsurance, an offshore company based in Dublin, writes Diane Coyle.

Routemaster, named after the classic red double-decker buses, will provide motor insurance as well as public and employers' liability cover for the 10 London Transport bus companies due to be sold by the end of the year.

Clive Pracy, London Transport's head of risk management, said: 'Obtaining insurance for large bus operators is a real problem.' London Transport decided a captive insurer was the solution.

Small insurers are willing to cover small operators with fleets of up to about 400 vehicles, but not to take on bigger risks. Bus companies with more than 800 can get cover from Lloyd's syndicates.

The 10 London Transport companies, with fleets of about 500, will fall through the gap. They will also lack the independent financial history insurers would want to see.

Mr Pracy said: 'The particular concern was that management buyout teams would not be able to compete properly because of inability to be certain of buying cover at an affordable price.'

Routemaster's premiums have not yet been decided but will be lower than alternatives.

The insurance arm will have initial capital of pounds 1m provided by London Transport, which yesterday announced its first operating profit, pounds 5m, in the 10 years it has existed in its present form.

Each of the 10 bus companies will be equal shareholders. They will also be the only customers until they have all been sold. When the business is entirely privatised Routemaster will be open to other customers and shareholders.