By Paddy McGuinness CMG OBE, Former UK Deputy National Security Advisor
As 2020 draws on, and we endure the largest natural hazard event of our generation, we should ask whether and how the British Government plans to partner with the insurance industry to improve national resilience? The answer, I fear, is that the industry is not seen as a natural choice for this task. It is worth thinking how we change that for the benefit of all.
The Integrated Review
Boris Johnson’s majority-backed Government came into office on 13 December 2019 with a definite plan to rethink and reorganise the UK’s approach to national security. This was, in part, a function of ‘Global Britain’ and the idea that the UK has a standing and a role in the World beyond its membership of the EU. It manifested itself in a planned Integrated Review (IR) of the UK’s Foreign, Defence, Security and Development Policies said to be the largest since the end of the Cold War. On 26 February 2020, when the IR was announced, there was almost no public comment about the seemingly low profile of terrorism, or indeed wider natural hazards, in the press release. Rather, there was a list of things the Government, and especially chief Prime Ministerial adviser Dominic Cummings, cared about – procurement structures, the role of the Armed Forces, technology and data. There was a heavy emphasis on constructive challenges.
The two previous Strategic Defence and Security Reviews, both conducted during the Cameron ministries, had pulled resilience to the fore as a national security issue and had placed hazard events – Public Health and Major Natural Hazards – in the first tier of risks alongside terrorism, international military conflict, instability overseas and cyber. Up to February 2020, domestic resilience was not the priority for Johnsons team which it had been for their predecessors. Since then, natural hazard has asserted itself in the form of the global COVID-19 pandemic. It is not just that a low probability, high impact event has occurred but also that, like a fever which makes one feel every past injury and weakness, the virus has opened us up to state and criminal cyber activity, opportunistic manoeuvres by state adversaries (such as the imposition of the Hong Kong security law) and made the fabric of our economy more susceptible to damage.
Terrorism has also made a showing – though not as the strategic challenge to the economy which Pool Re was set up to counter or which 9/11 or the various attempts to disrupt the international aviation system represent. The stabbings in Streatham in February and Reading in June were a reminder that while we may be at a lower point of the oscillating threat from terror than we were when Daesh or Al-Qaida controlled territory, the problem has not gone away. Terrorists are persistent.
The impact of COVID-19
It is worth reflecting how these developments feel within the Government. The COVID-19 crisis has stressed all of the structures and processes that good government and effective crisis response rely upon. Crisis has become business as usual. One of the strengths of the UKs counterterrorism and, indeed, cyber crisis response has been the ability to act across a complex system quickly and to significant effect. This can maintain public confidence through incidents and create a drive towards recovery (the partner of response in the resilience process), which can keep business interruption (and thus claims) to a minimum. It is no surprise that a crisis of this long duration and intensity has strained these arrangements and those operating within them.
The interruption of normal business by Covid-19 has taken its toll on the Integrated Review. The teams working it, civil service and political advisers, have been diverted to pandemic response and so have lost both time and momentum. Insiders tell me that there are strong drafts circulating on the UKs place in the world suggesting that the interplay between two gifted men – Professor John Bew, the Prime Minister’s Diplomatic Adviser and diplomat Alex Ellis – is working well on traditional subject areas. There isn’t the same grip on domestic resilience but it is hard to think that such a review coming during this pandemic can avoid a substantive approach to hazards.
The output of such reviews is generally a strategy which lays out what the Government hopes to achieve including through legislation. We should question whether there is space for new initiatives. There is a backlog of promised National Security-related legislation to be passed by Parliament – on online harms, national security and infrastructure investment, the Counter-Terrorism and Sentencing Bill, perhaps an updated Espionage Act and the issue of intelligence oversight. It will be two years or more from a resumption of normal parliamentary business before parliamentary time is available for new bills to be considered.
Domestic resilience and the insurance industry
How is the insurance industry seen by this Government? It has come to attention in a minor way and this has not been wholly positive. The convening of insurance providers during last autumn’s floods was a piece of political theatre designed to suggest that the industry needed to be held to account. Following that, the scale of the Treasurys exceptional spending of tens of billions of pounds in response to COVID-19 mean that insurance claims were not a critical factor in the national response and litigation about a failure to payout on some policies has obscured the industry’s overall potential to contribute. Strangely, although the industry contributes to the process which defines risks in the national risk register, it is not routinely proposed as a factor in mitigating those risks.
So it does not seem likely that the IR will innovate in response to the challenge of domestic resilience. Nor will it, as things stand, look to the insurance industry for solutions. More’s the pity as the industry has a wider range of tools and greater reach than many in government understand. Six aspects stand out. First, and perhaps above all at a time when government is struggling to shape public behaviour to the better following lockdown, the industry promotes the understanding of risk (and where it lies amongst those insured). A great challenge in domestic resilience is that government has limited control over the critical assets and systems that we all depend upon. Acceptance and management of risks by the private sector to optimise resilience is at the core of this challenge. Second, the insurance industry can influence practical mitigation of those risks as a policy condition or as a recommended step. I have been struck by how many of my clients have turned to their insurers to test the validity of their arrangements for return to work post-lockdown. Third, it promotes the service industries that deliver those mitigations. It requires standards and provision of service at scale. For instance, in the cyber context, the adequately insured consistently respond and recover quicker from events than those with limited or no cover. Fourth, there is a network effect for government: through the insurance industry’s interaction with insured individuals and enterprises. The sector has very wide reach in society which compliments that of government bodies and adds capacity. This is about preparedness and response but also recovery. Every household or business that stands back up after an event supported by insurers is one less that will ultimately fall on Government’s books. Fifth, the concentration of the insurance industry in the City of London is a source of comparative advantage to the UK. In general, successive governments have sought to protect that market while maintaining drivers for innovation. Here there is an opportunity for more active stimulation of innovation in an area which several Countries are considering.
Finally, there is the question of how this government thinks of its role as insurer of last resort. Some in past governments have sought to deny this role but major events such as this pandemic or a tragedy such as Grenfell Tower, see the state paying out. For terrorism, government chose to create a buffer and protection for the market through a pooling mechanism.
An ambitious IR would stand back and apply the pooling model to a wider range of difficult to insure risks from the National Risk Assessment than just terrorism and flood: a Catastrophe Reinsurance Pool. For now, this is not on the agenda. It should be.
