Ever since pirates seized the Maersk Alabama, the attention, quite rightfully, has been focused on the well-being of the vessel’s crew.Yet, piracy has huge economic implications, especially for insurers of cargo and vessels.

In addition to policies cover loss of cargo or damage to the vessel arising from piracy, vessel operators are increasingly seeking policies covering kidnap and ransom.

Carriers are also crafting policies to cover business interruption or loss of earnings due to piracy. In December, Chicago-based risk and insurance firm Aon launched a new insurance policy for charterers, ship owners and cargo owners to cover loss of earnings from a ship being detained by pirates.

Peter Townsend, head, marine hull, at Aon, told Insurance Networking News that coverage is still available for those plying the dangerous waters off the coast of Africa but at an enhanced cost. “Vessels that are entering the Gulf of Aden trading area are being charged additional premium by underwriters in order to cover detention.”

While piracy is ancient, until recently it was mostly a nuisance to modern, international trade. Yet pirates, from the politically unstable horn of Africa have become increasingly active in recent years. These modern buccaneers started menacing smaller, slower vessels, but have used the ransom money from these earlier captures to upgrade their equipment and are now able to menace large vessels like the Alabama. “They’ve upped an ante,” Townsend says. “Before it was taking the crew’s wallets, now they are taking the whole ship.”

On board, Townsend says there are steps that can be taken to help ward off pirates, including installing Razor wire on deck, manning the fire hoses, posting better lookouts and maintaining a higher service speed through areas where pirates are known to operate. Other anti-piracy measures, such as deploying armed guards aboard a vessel, are very expensive. “In order to mitigate the overall loss it’s incumbent on the ship owners to act as they are uninsured,” he says.

More drastic measures such as rerouting the ships that normally travel through the Suez Canal, is not a viable economic proposition, Townsend notes, adding that 30,000 vessels go through the canal annually.

“The only way to avoid the Suez is to go around the Cape of Good Hope. You add 12-14 days to your voyage as well as the cost of extra fuel and wages,” he says. “The economic costs would vastly exceed what the pirates have actually attained in ransom money.“

Geography also circumscribes efforts by navies to police the trade lines. The 20 warships from industrialized nations currently tasked with stopping the pirates patrol an area of 1.25 million square miles. “You have basically, a quarter of the Indian Ocean to cover,” Townsend says.

According to Townsend, the real solution to the piracy epidemic lays on land not at sea. “It’s the lack of a creditable government in Somalia that’s causing the problem,” he says, noting that loopholes in international law mean pirates captured at sea face few repercussions on land and are soon back at work. “Until that’s resolved this is not going away.”

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