CAB38-23 — Page 108

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insufficient to cover the risks offered. forward for discussion:

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For this purpose the following suggestion is put

The State could offer, in return for a fixed, but relatively high premium (of, say, 10 per cent, per voyage), to insure British vessels and their cargoes during time of war.

The State policies issued might, as a matter of convenience, cover all risks, war or marine. The offer should, of course, be subject to the right of the Admiralty to bar certain extremely perilous voyages, though, in practice, this power should probably be sparingly used. The result of such an offer would be that the vast bulk of marine and war insurance would still remain in private hands, since the usual risks, even in war time, are much below 10 per cent. But the offer of the State would effectually prevent rates rising above 10 per cent.

Now, a 10 per cent. rate of insurance on hull and cargo would not of itself, apart from panic, support a rise of prices of necessaries (such as grain) of more than about from 15 to 20 per cent., a rise which is well within the ordinary market fluctuations, and would be practically lost amid the fluctuations due to far more powerful causes which would govern prices in time of war.

Of course, it is not lost sight of that, under this scheme, the State will have only the worst risks brought to it; and that, even if the worst risks of all are eliminated by refusing the most perilous routes, the 10 per cent. premium charged is unlikely to cover the whole of the liability undertaken. But, on the other hand, it is to be observed that the net cost will be very much less thau under a universal scheme of free indemnity, and that any scheme based on the adjustment of premium to actual risk is open to the fatal objection that it inevitably discloses the state of affairs to the enemy. It is essential, therefore, that if any charge is to be made, the premium charged shall bear no direct relation to the particular risk. It should, in fact, be based on the two con- siderations that it must be (1) low enough to avoid causing au undesirable rise in prices, and (2) high enough to leave the great bulk of insurance business in private hands. Of course, there will be a certain automatic adjustment of premium to risk by the selection of risks, but it seems essential that all risks which are high enough to justify the fixed premium and yet not high enough to be absolutely barred should be treated on the same basis. What the fixed rate should be is a matter for consideration. It might be fixed as low as 5 per cent. without affecting the principle of the scheme. The result, of course, would be that a materially greater number of risks would be brought to the State, and both the cost to the State and the interference with ordinary trade would be much greater. On the other hand, it would tend more powerfully than a premium of 10 per cent. to check a rise of rates and keep down prices.

It may be objected that the scheme here proposed involves separate policies taken out beforehand in all cases, whereas some of the promoters of a scheme of national free indemnity seem only to have contemplated State action if and when a loss had been actually incurred. But to those who heard the evidence before the Chamberlain Committee, it became abundantly evident that no scheme of free indemnity was workable unless a certificate, which to all intents and purposes was a policy (fixing the value to be made good by the indemnity), were issued in each case beforehand. Other- wise the bankers, bill brokers, &c., who finance the transit of goods would not consider that they were properly protected.

It will be observed that, if a high premium be charged, the tendency to over- valuation for purposes of war insurance would be powerfully checked, if not entirely done away with, and it would probably be possible in ordinary cases to accept the insurer's valuation, retaining, of course, the right of challenging it in suspicious

cases.

It will be noticed that the scheme only contemplates insurance per voyage, and not the issue of time policies. There seems no reason why the State should undertake time policies, which, moreover, are unsuitable to the insurance of cargoes.

If it be objected that it is inequitable to charge a fixed premium, irrespective of the length of voyage, it may be answered that, in fact, the degree of risk of a voyage is in no way proportionate to its length, the actual zones of danger, even on a long voyage, being frequently very narrow. Moreover, if in the case of a short voyage the owner of a ship or cargo can obtain better terms from underwriters than from the State office, the risk will naturally be insured elsewhere.

The Chamberlain Committee considered that the question of administrative

* These suggestions do not differ greatly in principle from the scheme put forward by Mr. Wilding, and very imperfectly dealt with by the Austen Chamberlain Committee, and they also have some points of affinity with the proposals of Sir George Clarke.

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