The Armed Forces are in danger of walking into a severe insurance mess, warns Richard Walsh
Back in the mid 2000's I was involved in facilitating a life insurance scheme for members of the armed forces. At that point existing private insurance schemes were starting to unravel.
The role of the UK armed forces had changed from preparing for a major war with few people "under orders" or in direct conflict to one where we were becoming the "world's policeman" - in common with the USA.
The solution, which eventually went live in 2007, gave servicemen the opportunity to obtain life insurance regardless of their situation. It was provided by an insurance company, re-insured and with the Government acting as re-insurer of last resort.
This was a big issue then given discussions of possible weapons of mass destruction which could result in massive casualties that could not be supported by traditional insurance arrangements.
In addition to life insurance (SLI) members of the armed services can also obtain personal accident insurance (PAX) through another scheme and both options have proved viable, popular and sustainable in our new military environment.
PAX provides personal accident and life insurance cover for regulars and reservists. Customers can buy between 1 and 15 units of individual or family cover (individual plus partner and dependent children).
The scheme provides continuous cover, worldwide, on and off duty. Cover is provided on a monthly basis (paid monthly direct from Service personnel wages and is shown on pay statements) and can be cancelled at any time. The PAX contract is currently due to end on 30 June 2013.
SLI provides life and terminal illness cover for regulars and reservists. Cover is available for up to £200K. The minimum policy term is now 5 years, with premiums determined by age and smoking history.
No account is taken of service or employment. Being long-term, SLI policies which started before 30 June 2013 will be honoured for the full length of the policy term -which could be up to 25 years - regardless of what happens in 2013.
Fast forward to now and we that see both schemes are under review with a proposal to combine them on 30 June 2013. A contracting process is currently underway.
Given the fiasco of the West Coast rail contract there is currently a cross-government review of all major contracts. I guess this is fair enough but it is extremely important that it does not result in a limbo period when people are denied life cover.
The MOD has talked about transitional arrangements between the current situation and when the new contracts are awarded and this will be fine so long as there is not a gap.
Existing service staff are OK as they are on long term contracts but, potentially, there might be a period when new applicants cannot obtain a new policy.
March to September 2013 is the critical time as around 10,000 people on Operation HERRICK will at that point be assigned to Afghanistan.
If we get this wrong, there will be a major disruption for a significant portion of the 78,000 existing PAX customers and to any new people who might want to obtain life insurance.
So what next? IFAs with armed forces contacts will want to make sure that their clients take out life cover before a potential hiatus.
The Government needs to agree to continue to take the role of insurer of last resort and ensure that the contracting process is not put in limbo as collateral damage from the West Coast line debacle.
And finally the trade bodies need to get behind the scenes to smooth the path for a good transition to the new arrangements. If all goes well no one will notice the transition very much. If it doesn't it will turn into another top level debacle....
