Pirates have stepped up their attacks on shipping in the Gulf of Aden and the Indian Ocean. In three days (April 6-8) the marine marauders, based in Somalia, seized four cargo ships and a French yacht (See IJ Web site “International” section).
However, in trying to hijack the 17,000-ton Maersk Alabama, a U.S.-flagged, Danish-owned container ship, on April 8, the pirates bit off more than they could chew. The 20-man American crew retook the ship, but the pirates got away with the captain. The USS Bainbridge, a navy destroyer was dispatched to the area.
Both hijackings came to sudden and dramatic ends. U.S. Navy Seals went into action when observers saw Phillips being threatened with a firearm. After receiving the approval of President Obama, Navy sharpshooters opened fire, killing three pirates and freeing Phillips. The fourth pirate, who was on a navy ship at the time, surrendered.
Negotiations reached an impasse with the hijackers of the French yacht Tanit, who were threatening to execute their hostages prompting President Nicolas Sarkozy to approve a commando strike. Although it successfully recovered the yacht, killing three pirates in the process, the owner, Florent Lemacon, was killed in the operation. French policy draws a “red line” at hostages being taken to land.
A number of governments, including the U.S., the UK, China and Japan, have dispatched warships to the area in an effort to stop the piracy. It has lessened somewhat along the Somali coast, but the pirates have responded by making forays further afield. The German container ship, taken on April 6 was near the Seychelles Islands; the Maersk Alabama was about 300 miles offshore.
As reported by Reuters, the pirates typically launch speed boats from mother ships, meaning they can sometimes evade warships patrolling the strategic shipping lanes and strike far out to sea.
As a result “ship-owners navigating the Gulf of Aden are seeing insurance premiums for kidnap and random (K&R) increase tenfold as piracy escalates,” reported Aon Risk Services. “This means ship-owners could be paying $30,000 premium for $3 million of cover for one journey through this piracy hotspot.”
There’s a growing demand for “Specialist Piracy Policies” for K&R insurance. Aon explained that these can include “cover for consultant and negotiator costs, ransom demands and medical care.” They can be bought for individual transits or on an annual basis to bring down the cost.
Ashley Leszczuk from Aon’s crisis management team indicated that “despite the presence of naval ships, the spate of piracy attacks over the last six months does not seem to be abating with increased civil unrest and pirates’ easy access to rocket launchers and AK47s. As such, we’ve seen enquiries for cover escalate as ship-owners seek to protect their employees and businesses.”
Numerous solutions have been discussed, but each one seems to have its own drawbacks. They include: 1) more naval patrols; 2) putting armed guards on vessels; 3) a convoy system, similar to that used in the North Atlantic in World War II; 4) Taking out the Mother Ships; 5) Bombing the pirates sanctuaries in Somalia but there’s also the risk of civilian casualties; 6) avoid the “at-risk” area; 7) try to regenerate Somalia so it isn’t a failed and essentially lawless state.
Renewal seems set for the European insurance industry’s Block Exemption Regulation (BER). The European Commission (EC) recently endorsed continuing the regulations, which exempt insurers from the European Union’s rules governing competition, much to the relief of the 16-member Federation of European Risk Management Associations (FERMA – www.ferma.eu).
The exemptions were first introduced in 2003, and are currently scheduled to expire in 2010. FERMA issued a bulletin noting that the “legal certainty provided by the current BER has fostered cooperation among insurers to create competitive insurance markets with sufficient capacity to meet the needs of large international insurance programmers. A renewed BER in March 2010 will continue to achieve this fundamental objective by exempting joint calculations, tables and studies, and co-(re)insurance pools from EU competition rules.”
The statement also approved the EC’s actions on joint calculations and studies, an issue raised by “large commercial buyers.” In relation to pools, the EC said the renewal of the BER is necessary not only to clarify the safe harbors, but also to induce compliance by pool members,” a stance FERMA agrees with.
FERMA was disappointed, however, that the Commission didn’t endorse the view of the industry that cooperation in relation to standard policy conditions (SPC’s) should continue to be covered by the BER. FERMA’s bulletin pointed out that it is “very valuable to large commercial buyers as it reduces transaction costs, facilitates the comparison between policy conditions and provides better contract certainty. Accordingly, FERMA believes that, to the extent that SPCs will fall outside of the BER, the Commission should at the very least issue guidance so as to provide sufficient comfort and legal certainty as of March 2010.”
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