Armed Forces – the Nations’ All-Risk Insurance policy

A country’s armed forces are its ultimate insurance policy.

Attending the incredibly moving Armistice Day Ceremony at Lloyds yesterday (the insurance chaps, not the bankers…) got me thinking. Please take a look at the iPhone footage I took of this amazing event (about eight minutes long, including the Silence), in which the famous Lutine Bell is rung, and all trading stops.

I was there, invited by the Lloyds branch of the Royal British Legion – the last remaining of the original autonomous RBL branches, formed to provide for associates of Lloyds affected by military service. Lloyds RBL now do excellent work for today’s Servicemen and women, including funding an Oxford University scientific project for the charity I’m involved with – Braveheart.

This day with Lloyds was extremely heartening for me personally. In the role they play underpinning all UK business enterprise, Lloyds appreciate very strongly the UK Service community’s commitment in creating the security that allows them and so everyone else to do business. In the early days of Lloyds of London, when they insured ships, the Royal Navy was of obvious benefit to them; but today, with risks so diverse and complicated, the stabilising effect of the work of all three Services is obvious to insurance brokers, and very much appreciated.

Today – the day after my reflective experience in the City – I asked an insurance broker friend how much he’d quote as annual premium for world-wide, all risks, no quibble cover for UK plc, given it’s current state of security and commitment. He said “Something well north of 3% of annual turnover,” for which read GNP.

Further pressing from me elicited the guess that this would not be around the 4% mark, but something approaching 25%!!

I’d always known our Armed Forces to be good value. But with defence costing between 2 and 3% of GNP at the moment, it’s astonishingly good value. But as it seems certain now to decline to below 2% (like Belgium) someone is very clearly taking the proverbial Michael.

And of course unlike the insurance market, which has to hedge its bets with things like Acts of God, terrorist action and natural disaster receiving special treatment (along the lines of exempting the insurer from coughing up “in the highly unlikely event of such things taking place”, British Service people don’t apply any such caveats to their commitment.

Indeed, our Servicemen and women do the opposite and grant the Crown total immunity to do with them as it wills – “in the unlikely event of anyone acting in an irresponsible manner that leads to their injury.” We therefore have ludicrous injustices, like Servicemen missing several limbs on operations receiving significantly less money from the State than a typist with repetitive strain injury.

Insurance risk is calculated using maths and actuarial tables. Even so, for anybody nations included, it’s impossible to obtain insurance against something that’s bound to happen. With the de-commissioning of Ark Royal and the axing of Harrier, I absolutely know that Argentina will start planning to invade the Falklands all over again – as they did in response to the announcement of icebreaker Endurance’ scrapping. Their Staff College will already be dusting off the plans, the FAA organising the crates of champagne. Two waves of FAA attack aircraft will overwhelm the four (yes just four) Eurofighter Typhoons, which I’m sure will shoot down their allocated nine invaders before (probably) being caught out on the ground re-arming. The South Atlantic is huge with very rough seas, so unless the Royal Navy sends most of their fleet submarines down there early, which for the previous two crises its never managed, relying on submarines to stop the Argentine Navy isn’t in my opinion very sensible.

When just this one disaster breaks upon us, the costs will overwhelm the savings supposedly being made by cutting Harrier and emasculating the Royal Navy, like a tsunami.

But of course the true costs of this Government’s ill-informed gambling with our security will be paid by the Service folk – sailors, soldiers, airmen and their families – our remarkable, never-quibble, all-risks insurance policy.

Being Lloyds’ Chairman, Lord Levine should give this government some serious actuarial advice before he moves up-river to sort out the MoD’s defence procurement nightmare.

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