Filed Under:Markets, Commercial Lines

Pirate Attacks Rise Again; U.S. Insurers Stay Out Of Hull Coverage

NU Online News Service, Jan. 18, 12:34 p.m. EST

For the fourth straight year the number of pirate attacks against ships has risen, with hijackings off the coast of Somalia accounting for 92 percent of all ship seizures, according to the International Maritime Bureau (IMB).

More than 635 hostages were being held for ransom as of Dec. 31, 2010, the IMB’s global piracy reported said.

James M. Craig, president of the American Institute of Marine Underwriters, said he has not heard anything new from members on the issue for several reasons—one being this type of information is often considered proprietary.

Secondly, he said, the American market does not write a lot of “blue water hull,” or coverage for ocean-going vessels that would include ransom payments. Ransoms paid to Somali pirates increased to an average of $5.4 million in 2010 compared to an average of $150,000 in 2005, according to nonprofit think tank One Earth Future.

Much of the hull coverage is written by the London, Norwegian and Japanese markets, Mr. Craig added.

“Very—underline very—few U.S. companies get involved with the actual hull,” Mr. Craig said. Some U.S.-based companies do write coverage for the cargo on seized ships, but even then “you have to be very careful not to violate U.S. laws and sanctions” when paying a claim, he added.

Insurers have to go through the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury, which administers and enforces economic and trade sanctions.

One Earth Future, which said it is committed to seeking effective solutions to emerging governance challenges, put the cost of piracy in 2010 at about $7 billion to $12 billion. Insurance premiums were between $460 million and $3.2 billion of the cost, the foundation said. A majority of the total cost is driven by the piracy off the coast of Somalia.

In total, 445 ships reported attacks in 2010, up 10 percent from 2009, the IMB said. Hostages are on a rapid rise. About 1,180 crew members were taken hostage in 2010 compared to 188 in 2006.

Somali pirates are also traveling farther to attack, reaching as far south as the Mozambique Channel, which is “unprecedented,” said the IMB.

Captain Pottengal Mukundan, director of IMB’s Piracy Reporting Centre, said the increase in attacks is “alarming.” He said pirates are now overpowering fishing and merchant vessels to use in attacks on other unsuspecting ships.

“There is a desperate need for a stable infrastructure in [South Central Somalia],” said Mr. Mukundan, who called on the United Nations to develop “workable administrative infrastructures” to prevent attacks.

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