This is a first. I want to thank the insurance company Maritime and Underwater Security Consultants who sent me this excellent article, and here is a link to their website. Their intent was to promote that their company has the most extensive insurance plans for kidnap and ransom, and that other companies fall short in their coverage. If you are a shipping company owner or yacht owner and you are reading this right now, feel free to check these guys out–but still, buyer beware. This is not an FJ endorsement, but I will definitely provide a link for your research.
The real story here though, is that with all of this competition between insurance companies in providing K and R insurance driving down cost, as well as the increase in protective measures on the boats, premiums are dropping. Now of course Reuters and the authors won’t say it, but I think armed security contractors on the boats are what really give them a better rating. That, and all these navies floating around and hunting pirates have got to help as well. But what happens when these navies burn out, and their governments call them back because of the cost?
For one, if you read further down the report, there is already some buzz in the industry about starting up a private navy to help supplement today’s naval operations. I personally think this is a move to provide a back up plan, if a navy or two decides to bow out. Piracy is not going away anytime soon, and I wonder how long countries can keep up their deployments–both politically, and economically.
I also took interest in this Automated Voyage Risk Assessment system, designed to analyze a boat’s protective capabilities in dangerous waters. AVRA I hope is a complete assessment system, that includes lethal and non-lethal factors in protecting a boat. If this is one of those mechanisms developed by the Juicebox Commandoes I keep talking about, who continue to promote non-lethal as the only suitable protection for ships, then I have no respect for AVRA. –Matt
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Piracy premiums take a breather but menace remains
Thu Apr 1, 2010
By Myles Neligan and Lorraine Turner
LONDON (Reuters) – Stiff competition and moves by owners to protect ships better has taken the edge out of insurance costs after pirate attacks off Africa’s east coast created a two-year boom for specialist cover.
But analysts say the menace of piracy is far from contained, and unchecked growth in the rest of Africa, possible attacks in other key shipping channels and higher ransom demands will keep insurers interested in the long term.
While official estimates are not available, brokers reckon sales of so-called marine kidnap and ransom (K&R) insurance have soared to about $100 million (66 million pounds) a year since 2008, when the product was first developed in response to an upsurge of vessel seizures and ransom demands by Somali gangs.
But the cover now costs less than it did two years ago, reflecting mounting competitive pressure as more insurers enter the fast-growing market.
The marine K&R market is currently dominated by six players, led by Bermuda-based Hiscox (HSX.L) and Travelers (TRV.N) of the U.S., up from just three when the product first became available, and more are expected to join.
“There’s an increase in supply and the price is going down,” said Sean Woollerson of insurance broker Jardine Lloyd Thompson (JLT.L).
“The cost has peaked and there are more and more players coming into the market.”
And the cost of marine K&R could fall further still as a result of a range of initiatives, currently under discussion between shipping organisations, insurers and governments, aimed at making vessels less vulnerable to attack.
PRIVATE NAVY
These include a plan, drawn up by Jardine Lloyd Thompson, under which shipowners would divert some of their insurance expenditure towards capacity building in Somalia and funding a private navy which would patrol high-risk waters, reinforcing national naval forces already operating off the Somali coast.
Separately, shipping industry lobby Bimco is trying to negotiate lower insurance premiums for vessels with a favourable maritime risk score on its Automated Voyage Risk Assessment (AVRA) system, which grades ships according to their ability to fend off pirate attacks and other threats during their journey.
While any reduction in premiums would be warmly welcomed by the shipping industry, pirate attacks surged by more than a third last year, according to the International Maritime Bureau, and this is expected to keep demand for piracy cover strong.
Experts say piracy’s unchecked growth partly reflects copycat attacks elsewhere in Africa, while the original Somali pirates, increasingly displaced from the Gulf of Aden by naval patrols, turn their attention instead to the Indian Ocean.
“Nigeria is one of the other areas where we see a lot of piracy,” said Hiscox underwriter Guillaume Bonnissent.
“All the experts think it will also re-emerge in the South China Sea and the Malacca Straits, and there is no reason why it won’t appear in Latin America, where kidnap on land is widespread.”
RANSOM DEMANDS
Although the precise sums handed over to secure the return of hijacked ships are a closely guarded secret, anecdotal evidence within the K&R market suggests a typical ransom is about $3 million, up from below $2 million a year ago, according to broker Richard Scurrell of Special Contingency Risks, a unit of brokerage Willis (WSH.N).
Pirates demanded a $3 million ransom for a North Korea-flagged ship captured last month, Reuters reported.
Industry participants say this inflationary trend, reflecting pirates’ rising ransom expectations amid vague talk of outsize payments in a handful of cases, could reverse the recent drop in marine K&R premiums as insurers seek to recoup higher average claims.
However, those with personal knowledge of pirate attacks stress that there is more than money at stake in any such incident.
Peter Spencer of mutually owned ship insurer Standard Club, who closely monitored an attack by Nigerian pirates on a vessel he was responsible for in a previous role as a ship manager, describes the episode as “a very nasty experience.”
“A load of heavily armed pirates came out and shot the ship up and came on board. They were all drugged except for the guy who was in charge an it was only by luck that they didn’t execute the chief engineer,” he said.
“It wasn’t something we ever wanted to happen again.”
Story here.