Select Committee on Defence Minutes of Evidence


Examination of Witnesses (Questions 780 - 799)

WEDNESDAY 10 APRIL 2002

MR JOHN SHARP, MR DAVID GAMBLE AND MR PAUL WOOD, MBE

  780.  Just one final question, maybe it is for you, Mr Wood. You have already said the measures in place in the City of London are very robust but should they be extended—I am not aware that they have been—to, I do not know, Birmingham, Manchester, Leeds, Glasgow, Edinburgh?
  (Mr Wood) Again, I think there are measures that are consistent across all 43 police forces that relate specifically to how they are going to deal with a heightened increased threat, as there are in military and other areas, but I am not so convinced that they are of the same degree as they are in the City of London. That is a much more clearly defined square mile in which you can actually police with ease, you have got specific points of entry and other issues that go with it. Trying to take and replicate exactly the same measures in some of the other major cities would be probably seen as an infringement of public liberty as well.

  781.  But your problem is simply this: I am no terrorist but if I could not do what I wanted to do because of all the measures that have been set up in the City of London I would go somewhere else. I would go to Leeds, Leeds is a wonderful place to do whatever Leeds people do. How do you react then?
  (Mr Wood) Again, I come back to the point that I touched on earlier, good timely intelligence to be able to thwart these activities.
  (Mr Sharp) Can I just say that probably within about six weeks of September 11 the City of London Police, and I think the Metropolitan Police, were involved with the private sector in running a scenario exercise in exactly the same terrorist type situation, so they had gone through the thinking process, played the model out, as part of the learning process of what do we now do, what do we now need to change.
  (Mr Wood) And undertook a number of awareness presentations and initiatives to get the security community to understand that the risk was there and actually aimed some of those at senior chief executives of companies. I think that continued awareness campaign is worthwhile and needs to continue.

Chairman

  782.  I am not so sure that everyone would agree that the insurance industry should wash its hands of serious threats.
  (Mr Gamble) I did not say serious threats, I did say terrorism.

  783.  Terrorism is very serious.
  (Mr Gamble) Do not forget, I am a buyer of insurance, I am not an insurer, so I am not on their side.

  784.  I was thinking of the Troika scheme in the United States where you are on your own and if your aircraft are blown up the customer has got to cough up. You now say the insurance industry is saying "if there is a terrorist act, we are out of it". I am not certain that the taxpayer should necessarily have to pick up much of the bill. The arguments you gave, I could understand those arguments if I was an insurer or if I was a private company, and I rarely speak in support of the Treasury but I can understand some anxiety that the insurance industry should make its profits, and fairly large profits, over many years but when the going gets really tough "thank you very much, but somebody else has got to take up the cudgels".
  (Mr Gamble) I think there are lots of areas where you can quite rightly attack the insurance industry for doing that, maybe connected to flooding or something of that nature, but when it comes down to facing completely uncapped liabilities then there is really no company in the world that could meet a trillion dollar loss, for instance, which was the point that Warren Buffett made from Berkshire Hathaway which is one of the great insurers in the States. That has to eventually come down to society meeting it. The fact is that at the moment the Treasury since 1993 has never had to pay out and has, I think, received more than £250 million in payment from Pool Re, quite rightly because they are acting as the insurer of last resort and so they should. If we can get more premiums being paid in, and remember that is very important, we are not asking for charity, we are saying that there will be premiums paid in and that will build up to maybe three or four billion pounds, we would very much hope that the Treasury will never be required to pay but if there is another huge attack, like the World Trade Centre, you will be in a situation where emergency powers will have to be taken out anyhow and the Government will have to get involved. It just seems to us so much better to get involved in this front end way where already we have got Pool Re established and it has worked well and the public purse has not had to pay out to date.

  Chairman: A slight variation on George Bernard Shaw: I accept the principle but it is the amounts perhaps that need to be argued over. It is not my problem.

Mr Jones

  785.  Is there not any way of doing it to make it compulsory on companies to actually pay into a fund which would then ensure that the amounts of money that you need are available?
  (Mr Gamble) It is called a tax take, is it not?

Chairman

  786.  I did not know those companies paid much tax.
  (Mr Gamble) Oh, they do.

Mr Jones

  787.  At the end of the day somebody has got to pay it. Insurance companies take it out to insure against risk, okay it is an increased risk, could we not argue that taxpayers' money should not be used to basically subsidise what is a risk to the business? Should they not foot that bill and a way to do that would be to build up a fund and make sure that everybody contributed rather than just some and make it compulsory for them to contribute into a fund, not the general taxation, specifically for covering this type of eventuality?
  (Mr Gamble) It is another possibility, certainly not a very popular one but it is certainly another way of doing it.
  (Mr Sharp) If you are in the City of London you would pay a different premium from those in Leeds unless our friend over here was targeting Leeds presumably.
  (Mr Gamble) My members who have got property in London, you can be very certain that they are paying premiums for Pool Re but for those people who have got quarries in different parts of the country they would not bother to take out terrorism insurance, they would not see the need for it, so those people would be very unhappy at suddenly being faced with a tax for Pool Re.

  788.  That is a silly argument surely because they would not do that, would they? If it was a bank, for example, or a similar facility in Leeds or, of all places, Walsall, you could make them.
  (Mr Gamble) They certainly do. After all, after the Manchester bomb there was a lot paid out on that occasion.

  789.  Do local authorities not take out terrorism insurance now in terms of covering their buildings?
  (Mr Gamble) Yes.

  790.  Surely to ensure there was money there available and to make it more fair for people compulsion would be a better way than leaving it to the market with the brilliant proviso that the poor old taxpayer picks up the bill at the end of the day?
  (Mr Gamble) It really is, as you say, the size of the bill. Normally the companies would be able to accommodate the losses but if the losses go above £10 billion I am afraid that everyone gets sucked into it, including the taxpayer.

  791.  Should the insurance industry not be insuring against this? That is what I find difficult about the insurance industry, it always bleats at the end of the day when the thing happens and they have to pay out on insurance premiums.
  (Mr Gamble) I would agree with you, it is a real pain in the neck that they suddenly withdraw this, particularly as they did with the airlines with seven days' notice, they withdrew the cover and therefore the Treasury had to step in and they did a very good job on that occasion.
  (Mr Sharp) It is very interesting to note that the business report on television this morning was talking about Lloyd's were going to declare their profits for last year, or their losses in fact, and it is about £3.1 billion. The interesting thing is there is a lot more investment coming into the insurance sector at the moment because the premiums are higher.
  (Mr Gamble) That is the premium for standard insurance, you cannot regrettably get the insurance for terrorism because the potential consequence is so large.

Mr Roy

  792.  Could I move on to the role of the central government and particularly the Civil Contingencies Secretariat. What role should central government be playing? At the moment do you think it is doing enough to help? What improvements have you seen in the performance of the CCS since it was established?
  (Mr Gamble) I have had no experience.
  (Mr Wood) Until you talked about the CCS today I was not even aware of their existence so I do not think they are very good at marketing themselves across the private sector.
  (Mr Sharp) I would agree with that entirely. They themselves recognise that and tomorrow I will be agreeing to go on a road show with them in July and in September to try and go out to promote business continuity, resilience, etc.

  793.  Mike Grannatt, who is the Head of the CCS, told us on 18 January "in London . . . there has been a great coming together of organisations involved in London's resilience—both the local government arrangements, central government arrangements, private organisations, utilities—(which) has shown that people have an appetite now in particular to be engaged in this." I just took it for granted so I am surprised you do not know.
  (Mr Wood) I echo his sentiments that we have a great desire to come together. Certainly I am not aware of it and I am not aware of any other part of my organisation that is aware of it. I am sure that had it been I would have been aware of that.

Mr Jones

  794.  In terms of the bank how big are you in terms of the pecking order?
  (Mr Wood) We are an investment bank. We are the third European investment bank.

  795.  And you have not heard?
  (Mr Wood) No.
  (Mr Sharp) I know that the awareness of their activities is very low.

  796.  What intrigues me is this idea of a road show for the Secretariat. Having seen the personnel involved I am not sure that will be very exciting.
  (Mr Sharp) There is an issue and that is are they going to be taking a real lead or are they going to be a postbox for disasters and I have a feeling that it is going to be the latter.

Mr Roy

  797.  Do you think that the principle of an elite Government Department for each civil emergency, for example, is still appropriate?
  (Mr Sharp) Let us take a nuclear accident. If the nuclear accident is fuel being transported it becomes a Ministry of Transport responsibility, if it is at a site that is a utility then it is another department, if it is actually a military situation it is another department.
  (Mr Wood) There is an overriding nuclear accident response organisation framework to deal with those sorts of activities, so I think that sort of level of activity is centrally controlled by Government adequately and I would feel comfortable about that. I think that there does need to be a lead department that has a clear directive and a clear mandate to try and co-ordinate that resilience and it does not just rest around London, it goes right the way across the length and breadth of the UK.

  798.  The lead Government department, would that be a principal lead Government department for every type of emergency or a department for various types of emergency?
  (Mr Wood) I think there is an overlap between both. It is difficult to have all the expertise in one basket dealing with it but across the issues of terrorism and the sort of disaster recovery type activity we are talking about here, yes, there could be one lead Government department using and pulling and drawing together the other experiences of Government, both central and local government. Where that naturally fits I do not know off the top of my head. Going on to the other issues about where Government needs to engage industry, we do need to have better circulation and making available timely threat assessment information. I think there is a huge amount of experience in both the defence sector and the Ministry of Defence about dealing with counter-terrorism and counter-terrorism measures and they have got huge experience how to do that, they can share that with industry. Having a national level of alerts is there in essence but is not widely shared with the community, again because of this intelligence trust and thwart. There needs to be an acceptable level. If it is adequate for the defence sector and the defence industries and List X companies then there is no reason in my mind why it cannot be shared with other parts of the commercial sector. I do not accept that there is a difference between the two.

Chairman

  799.  You said provocatively that you did not think that the CCS would be anything other than a postbox. What has led you to that rather gloomy—
  (Mr Sharp) Discussions with the CCS which say "we will determine which is the lead department and that lead department will take the crisis".


 
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