Insurers face tougher times as Somali piracy drops
Fri Sep 21, 2012 11:13am GMT
* Private armed guards helping cut attacks
* Gulf of Guinea emerging as growing pirate hot spot
By Myles Neligan and Jonathan Saul
LONDON, Sept 21 (Reuters) - A dramatic fall in pirate attacks off the Somali
coast is forcing down the cost of piracy insurance for commercial ships,
taking the shine off a fast-growing and lucrative market for London-based
insurers.
International navies have cracked down on pirates, including strikes on
their coastal bases, and ship firms are increasingly using armed guards and
defensive measures on vessels including barbed wire, scaring off Somali
seaborne gangs.
That reduced the number of incidents involving Somali pirates to just 69 in
the first half of 2012, compared with 163 in the same period last year,
according to watchdog the International Maritime Bureau.
"The chance of pirates being able to carry out successful hijackings are now
very slim, which is probably deterring many would-be pirates from going to
sea," said Rory Lamrock, an intelligence analyst with security firm AKE.
War torn Somalia is next to the Gulf of Aden's busy shipping lanes, and
poverty has in recent years tempted many young men to take up piracy,
storming commercial vessels and holding their crews and cargo to ransom.
Last year, they netted $160 million, and cost the world economy some $7
billion, according to the American One Earth Future foundation.
The drop in Somali pirate activity is weighing on the market for so-called
marine kidnap and ransom insurance, which has grown for scratch to be worth
about $250 million in little more than five years, according to informal
industry estimates.
Spending on marine K&R cover, which indemnifies shipowners against the cost
of paying ransoms and recovering vessels and crew, has halved compared with
two years ago, estimates Will Miller of Special Contingency Risks, a unit of
insurance broker Willis.
"We are seeing a softening in the rates that underwriters are charging for
piracy cover," Miller said.
"The key driver is the implementation of more robust security measures on
board by the shipping community."
Brokers and insurers say a key factor in the downturn is the spread of
on-board armed security, which has allowed shipowners to negotiate discounts
of up to 50 percent on their premiums in recognition of the reduced risk of
being hijacked.
GUN CONTROL
Guards equipped with guns are seen as the best deterrent as no ship carrying
them has ever been seized, although critics say they risk escalating
conflict with heavily-armed pirates.
Governments including Britain last year dropped their opposition to armed
maritime guards, triggering a big increase in their use. SCR's Miller says
about two thirds of his clients now deploy armed security, compared with
just 10 percent in 2010.
While the cost of piracy insurance is falling, the drop in the number of
hijackings will reduce claims, helping to preserve insurers' profits.
That is encouraging a string of new entrants amid lacklustre conditions
elsewhere in the insurance market, ratcheting up competition and putting
prices under further pressure.
"More people are competing for the same slice of cake," said Michael Sharp,
an underwriter at Lloyd's of London insurer Beazley.
"With so many people writing the same business, that's driving prices down."
Still, insurers are confident demand for piracy cover will remain buoyant,
pointing to other trouble spots including the Gulf of Guinea on the other
side of Africa and the Straits of Malacca in Asia.
"If Somali piracy goes away, sadly there seems to be a number of other hot
spots around the world where protection is needed," said Sean Woolerson of
insurance brokers Jardine Lloyd Thompson.
Many in the industry also warn that it would be premature for shipowners to
let their guard down in the Gulf of Aden. Somali gangs have responded to the
drop in successful hijackings by ratcheting up their ransom demands, and the
inflationary spiral is expected to tempt retired pirates back into business.
"As far as the pirates are concerned, they are being paid more for less
work," said J. Peter Pham, Africa director with U.S. think tank the Atlantic
Council.
The average ransom payment this year is $6.5 million, up from between $5
million and $6 million in 2011, according to Peter Dobbs, head of asset
protection at Lloyd's of London insurer Catlin.
"I don't think piracy has gone away," he said.
C Thomson Reuters 2012 All rights reserved
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Received on Fri Sep 21 2012 - 18:29:09 EDT
