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Think of insurance rather than threat

Posted By on July 19, 2012 @ 01:00

When the subject of defence spending surfaces in public debate, there are inevitable and regrettable exchanges about whether Australia faces a ‘threat’ that justifies the expenditure. This is understandable, given the psychology of warfare, but unfortunate from the point of view of clear thinking about defence spending and the purposes for which sophisticated and expensive platforms are usually purchased. Public debate would be raised to a more responsible and constructive level if, instead of focusing on ‘threats’, we thought in terms of insurance cover and premiums.

Discussion of ‘threats’ (of coercion or intrusion) easily becomes distracted by hyperbole at one extreme and lazy scepticism at the other. We’re currently having, for example, a debate about whether China represents a ‘threat’. The 2009 White Paper [1] suggested that its authors believed China to be a looming threat and that we should beef up our armed forces accordingly. The new White Paper would do better to cast national security thinking in terms of insurance policies. This might encourage analytical thinking about what kinds of insurance the country would be wise to take out and what level of premium it would need to invest in order to have good insurance cover. The question of whether or how health insurance should be funded is a huge one across the Western world in our time and not a bad analogy for thinking about national security, since both are becoming increasingly unaffordable given long standing assumptions.

Anyone who has thought about insurance knows that the ideal outcome is that you will not need it. But if you don’t have it and then find you need it, you can be in dire straits. And there’s a balance to be struck across a whole range of different kinds of insurance: health insurance, car insurance, household fire or flood insurance, income insurance, insurance of household contents against theft and so forth. It’s unlikely to be a sound strategy to heavily insure against one risk while ignoring others.

When I suggest thinking in terms of insurance, I don’t mean we should simply purchase the same platforms, while describing them as insurance policies. I mean that we should quite deliberately think in terms of the range of cover we’d ideally have, what it would cost at various levels and which variables, if not attended to, could render it prohibitively expensive, insufficiently comprehensive, or both. Above all, if we think in terms of insurance, we’ll be more likely to systematically consider the relationship between risk, premiums and long term planning.

The need to do this was highlighted by the government’s recent cutbacks in defence commitments. Canberra has always played fast and loose with the defence budget and has just done so again. Mark Thomson’s fine essay pointing to the inevitable ‘capability gap’ that will result was most illuminating. But what is still missing is a systematic approach to national security which examines the range of things that could go wrong, the kinds of insurance against it that might be possible and our options for getting the best cover.

Paul Monk is a principal consultant at Austhink Consulting and an editorial board member of the Australian Defence Association. Image courtesy of Department of Defence



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[1] 2009 White Paper: http://www.defence.gov.au/whitepaper/docs/defence_white_paper_2009.pdf

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