Mayhem on the high seas

Modern Day PiracyAn attack by Somali pirates came late last week when the maritime bandits hijacked an oil tanker over one thousand miles from the Somalia coast. The seizure of the Greek oil tanker, Irene SL, occurred Wednesday about 200 miles east of the Gulf of Oman; a region that was thought to be safe. This was the second hijacking in this area; causing insurance underwriter’s to re-evaluate the current premiums that ship owners are paying for marine kidnap and ransom coverage.

Brokers stated,  “a study last month estimated the total cost of insurance due to Somali piracy was up to $3.2 billion annually.”

Marine kidnap and ransom coverage was first developed around 2008 due to the frequency of pirates seizing ships. The insurance prices continued to rise; initially, because of the demand for coverage, and then later, pursuant to the hijackings becoming more common, and ransom demands rising. The prices had just started to even out last year as more insurers entered the market and improved competition.

Sean Woollerson, a marine insurance specialist with (insurance) broker Jardin Lloyd Thompson, commented that “Underwriter’s are paying far more attention to the security measures taken by owners. We can negotiate a discount off the price quoted by underwriters for those measures being put in place.” While other brokers have said that, “insurers are likely to step up their demands that ships operating in pirate-infested waters take physical precautions against attacks.” At this time, the most common type of protection used on the ships is razor wire and safe rooms.

According to John Drake, senior risk consultant with the security firm AKE Ltd., “Premiums may rise further if the Lloyd’s market makes larger losses, and this will continue to push up the price of shipping goods, potentially raising commodity prices in affected markets such as the Gulf.”

 A spokeswoman for Hiscox, said, “It’s too early to tell whether the seizure of the Irene SL would spur a fresh rise in premiums.” Hiscox is the largest provider of marine kidnap and ransom coverage in the Lloyd’s market.

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