Ship Insurance Soars, With No Piracy Antidote In Sight

NU Online News Service, April 10, 8:58 a.m. EDT

Despite international efforts that have suppressed some attacks on Gulf of Aden shipping, the piracy problem is escalating along with a 10-fold increase in vessel insurance rates, a maritime expert said.

Meanwhile, no solution appears imminent, according to Peter Townsend, executive director for the Aon insurance brokerage marine division.

Mr. Townsend explained that even when pirates are caught in the act and captured by naval vessels, no nation is willing to assume jurisdiction over them, so they are generally returned to Somalia, their usual country of origin, which "has no creditable government."

The result, he added, is the pirates "are apprehended, they drop them off and they go and do it again."

Mr. Townsend said marine piracy is a huge problem, with significant economic costs. His company estimates that ship owners could be paying $30,000 in premiums for $3 million in kidnap and ransom protection for one voyage through the Gulf of Aden danger zone.

"If you compare that against [potential] loss of revenue and earnings, it's pretty cheap," opined Mr. Townsend.

He said when ships take circuitous routes that avoid the Gulf of Aden, it can add 10-to-12 days to the journey and, factoring in crew wages, fees and fuel, "it could add one-to-two-million dollars," to the cost of a voyage.

He noted reports that in order to secure the release of the Sirius Star tanker, owners paid $3 million to pirates who initially asked for $25 million. The amount of payments involved is generally kept secret, he said, because "the quieter it's kept, the easier negotiations go." Generally the larger the ship, the bigger the demands are, he added.

Mr. Townsend said the large amounts of money involved have created a growth industry that expands with every successful piracy action, since the criminals use the money they have collected to buy greater numbers of--and more powerful--armaments, as well as faster attack boats and improved navigation devices.

Pirates who roamed the seas in past decades, he said, had basically been "common thieves" content to make off with wallets, other valuables and ship's safes.

Piracy then was "deemed to be benign," and coverage was part of hull insurance, but now underwriters are removing it and making it part of expensive war-risk policies to cover physical loss or damage caused by pirates, according to Mr. Townsend.

Any ransom paid, he explained, is deemed to be a "sue and labor expense" incurred by the ship owner to prevent a definite loss.

Last year, he noted, there were 293 piracy incidents in which 49 vessels were hijacked, 899 crew members held hostage, and 32 crew members injured. Of these incidents, there were 111 in the Gulf of Aden area--a 200 percent increase, he related.

Mr. Townsend said that since a coalition of navies had begun patrolling the Gulf of Aden, the ratio of vessels attacked to those detained had gone from one-in-three to one-in-19. However, he pointed out that the patrol ships are covering an area of one million square miles, and pirates are now ranging hundreds of miles further afield.

The attackers, he said, come armed with rifles, automatic weapons and rocket-propelled grenades, and climb aboard ships using lines attached to hand-thrown or rocket-fired grappling hooks. He said they are capable of boarding a vessel in 15 minutes.

To avoid such attacks, Mr. Townsend said ships run at full speed, wrap their sides with razor wire, post constant lookouts and are prepared to fend off boarders with sonic-bang devices and fire hoses.

Using armed security and risking a gun battle does not appeal to ship owners, not wishing to deal with grenade explosions or spraying bullets that could make a casualty out of a crew member. And naval and air forces must use care to avoid incidents with innocent fishing boats, he explained.

But given recent attacks, Mr. Townsend said, "they are going to have to make ships more difficult to board--and that's not easy."