CAB38-23 — Page 107

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Schedule,

NOTE BY SIR H. LLEWELLYN SMITH.

THE arguments against a system of free national indemnity in time of war for war risks incurred by British ships and their cargoes are very fully stated in the Report of Mr. Austen Chamberlain's Committee on a National Guarantee for the War Risks of Ships. It is not the object of this Memorandum to reopen this question, but rather to consider whether any other means can be devised which, while avoiding the main objections to a national scheme of free indemnity, will yet meet the real dangers (if any) against which that scheme was intended to provide.

2. The evidence given before the above Committee left upon me the strong impression that there are only two real dangers which require serious consideration, and which might perhaps be held to justify State action and expenditure

(a.) That at the outset, or at some period of a war at which the risks are very imperfectly known, there may be a temporary panic rise of insurance rates to such a height as to send up the prices of necessaries to an alarming extent. (No competent person, so far as I am aware, supposes that this state of things could last for long, and it is improbable that it would last long enough to produce serious distress. Still, it might produce unrest and discontent at a critical moment, and it would of course disturb the course of trade, and in some cases cause real hardship.)

(b.) That the ordinary market for the insurance of war risks may shrink, or even dry up, either temporarily or permanently, owing to the unwillingness of underwriters to face the uncertainty. Thus, a large number of war risks may be unplaceable with underwriters, and as a consequence ships may be laid

up and bankers refuse to finance the movement of cargoes. As to the probability of this occurring leading underwriters seem much divided, as will be seen from the evidence given before Mr. Austen Chamberlain's Com- mittee; but when the President of Lloyd's appears to apprehend such a danger, it cannot be said to be beyond the range of probability.

If, then, we are bound to make our dispositions in expectation of the worst that can happen, we must contemplate the possibility of (a) and (b), and any remedy should therefore be sufficient to meet these specific dangers, while avoiding, so far as possible, the difficulties and dangers to which the Chamberlain Committee call

In particular :---

attention.

(i.) It should avoid the appearance of a gratuitous gift from the State to a particular trade at a time when all branches of trade will be more or less of a gamble, and every class of the population will be subject to unforeseen and incalculable risks of loss.

(ii) It should, on the other hand, avoid disclosing to the enemy the real con- ditions prevailing at any moment, by the quotation of official rates of insurance corresponding to the actual risks as known to the Admiralty. (iii.) It should interfere as little as possible with the current business of

underwriters.

(iv) It should restrict, as far as possible, the number of cases of risk undertaken by the State so as to diminish the danger of breakdown through congestion of business, fraud, &c.

(v.) It should avoid, or minimise, as far as possible, the administrative difficulties of valuation and of drawing a valid distinction between war risks and sea risks.

In a word, we shall want a plan which will leave the great bulk of the ordinary risks to be undertaken by private arrangement, and merely use the force of the State to prevent a panic rise of rates or the possibility of the insurance market being

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