Peace Dividend is Like Insurance

The UK military’s recent struggles to deploy forces highlight a critical vulnerability: a lack of scale and readiness that mirrors problems found across many industries. Reports from the Ministry of Defence have detailed embarrassing delays, such as the week it took to move one Type 45 destroyer to Cyprus. The situation is worse beneath the waves. Of the five Astute class attack submarines available to the fleet, only one is ready for deployment, with the rest stuck in various states of repair.

The surface fleet tells a similar story. A Type 45 destroyer and several Type 23 frigates are currently sidelined, leaving the Royal Navy with far fewer vessels than when the Falklands War began forty years ago. This decline is not a new phenomenon. Following the Cold War, successive governments reduced defence spending, assuming the primary threat had diminished. Resources were redirected to other priorities, creating a ‘Peace Dividend’ that has eroded capabilities across all three services.

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Since the Covid-19 pandemic, health-related benefit expenditure has increased by around £10 billion annually, compared with a total annual defence budget of approximately £60 billion. That single increase is the equivalent of buying another Royal Navy surface fleet every few years. The contrast with the 1982 response to the Argentine invasion is striking. Within three days, a task force of aircraft carriers and submarines was sailing south, involving more than 100 vessels. Yet, within two generations, the number of destroyers and frigates has fallen from 64 to 13, with availability often even lower.

Defence planners have often invested for the last conflict rather than the next one. After 9/11, focus shifted to counterinsurgency, which further declined peer-on-peer capabilities. Now, the war in Ukraine has forced a re-evaluation. Modern warfare involves cyber attacks, autonomous systems, and AI, changing the economics of conflict. Small drones and commercial technology have altered the battlefield, showing that adaptability matters as much as scale.

Lessons for the insurance sector

In many respects, the insurance sector faces similar challenges to the armed forces. Traditional risk models were built around physical assets and predictable loss patterns. However, today’s threats are intangible, interconnected, and evolving at extraordinary speed. Cyber attacks, AI-driven fraud, supply chain disruption, and climate volatility are now boardroom concerns that did not exist twenty years ago.

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The comparison between military planning and investment strategies offers a revealing parallel. During soft market conditions, organisations naturally focus on operational efficiency and short-term profitability. This can have the same impact as the ‘Peace Dividend’ where investment is concerned. Investment in future capabilities becomes harder to justify when current risks appear manageable. Clients are deploying AI tools at extraordinary speed, but underwriting frameworks and risk assessment methodologies often evolve much more slowly. The question for the industry is whether it can keep pace with risks that emerge faster than they can be fully understood or modeled.

Perhaps the most significant lesson from defence is that resilience comes less from accurately predicting the next threat and more from building the capacity to adapt quickly. Ukraine’s armed forces demonstrated that innovation and agility can offset shortcomings in scale and resources. The same principle applies to insurance. The winners in both sectors may be those that shift their focus from forecasting specific threats to building organisations capable of responding rapidly to uncertainty. This means agile underwriting, faster product development, and closer engagement with clients’ evolving environments rather than merely managing today’s risks more efficiently. The future rarely arrives in the form we expect, so organisations must retain the capacity to adapt when the unexpected occurs.