Piracy Insurance Is Still Available, At A Higher Price
April 13 2009 - 1:18PM
Dow Jones News
Despite a surge in piracy off the coast of Somalia in recent
years, capped by the dramatic rescue of a U.S. cargo ship captain
there Sunday, insurers are still willing to offer piracy insurance,
although at dramatically higher prices.
"In general, the price is up five- to 10-fold from 18 months
ago," when the surge in piracy off Somalia began to take off, said
Peter Townsend, executive director for the marine practice group at
insurance broker Aon Corp. (AOC). "The demand is there."
Piracy insurance generally covers physical loss or damage to the
ship or its cargo, along with kidnap and ransom coverage for the
crew. Townsend said he helped develop coverage that also includes
the daily loss that comes from having a detained ship sit unused
while the owners negotiate ransom with pirates.
Piracy-insurance prices are usually set per shipment no more
than a week before a planned passage through the area plied by
Somalian pirates, which includes the Gulf of Aden and parts of the
Indian Ocean. Though prices vary widely, it might cost a shipper
$30,000 to $50,000 for $3 million to $5 million of coverage for a
single voyage through the area, Townsend said.
Townsend said prices tend to dip immediately after a spate of
hijackings. "Underwriters feel that, if several vessels are being
held, the likelihood is decreased" that there will be another
pirate attack in the following days.
He said Sunday's rescue of the captain of the American-flagged
cargo ship Maersk Alabama by U.S. Navy Seal sharpshooters probably
won't decrease piracy, despite the death of three of the pirates
during the rescue.
"The rewards [of piracy] outweigh the risks, in their view,"
Townsend said. "The loss of three pirates will harden their
resolve. It is a risky business."
Townsend said he couldn't say if the Maersk Alabama was insured,
but he said many shippers play the "percentages" and hope their
ship will be one of the many that make it through unattacked.
However, the surge in piracy in the past two years is increasing
interest. Most piracy insurance is underwritten through the Lloyd's
of London insurance market, where groups of insurers take on
risks.
One insurer that offers the coverage, Chubb Corp. (CB), said
last month that prices generally were up around 20%. A Chubb
spokesman said the company didn't break out its total premiums of
profitability on the coverage, but that it wasn't a major part of
its business.
Townsend said pirates off the Somali coast detained 111 vessels
and 800 seafarers in 2008, which was about a 200% increase from the
year before. So far in 2009, 40 vessels have been detained.
In 2008, Townsend estimated, around 30,000 vessels traveled
through the area, which he called a "major artery" for
shipping.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com