Allianz Piracy Study

Tuesday, June 23, 2009

Allianz Global Corporate & Specialty (AGCS), an insurer of ships and cargo, has released a study suggesting its clients adapt their approach to marine insurance as the threat of piracy off the Horn of Africa continues to grow. In addition, the study points out that crews entering dangerous waters must be prepared to handle an attack, and it calls for a more coordinated solution to the current wave of piracy.

In a study entitled “Piracy: An ancient risk with modern faces,” AGCS suggests that special war insurance policies should be used to meet the needs of ships in high risk areas. AGCS also identifies a number of practical responses that crews can take when passing through piracy zones, and the study also points out that whilst piracy may be on the rise off Somalia and other parts of Africa, it is declining in other areas, but still poses a real threat to shipping and trade. “Anybody who has been involved with actual pirates knows the grim reality they live in and the damage they can inflict,” states AGCS Global Marine Head Arthur E. Moossmann.

Currently many vessels are insured for piracy as part of their standard hull and machinery insurance policies, which are not specifically designed to address security-related risks such as piracy. This means that some ship-owners are paying for piracy coverage when they do not need it because they are not sailing through piracy zones. So-called war insurance provides special cover for ships exposed to piracy risks on a per transit basis, meaning that it can be specifically underwritten to handle various exposures besides damage to the vessel and therefore can be priced more flexibly.

“There are a lot of shipping companies out there that are paying for piracy cover that do not need it as part of their hull and machinery policies,” explained Dr. Sven Gerhard, Global Hull and Liabilities Product Leader at AGCS. “Conversely, there are a lot of vessels that are exposed to high levels of piracy risk because of the routes they travel that – under current underwriting – cannot arrange more flexible, individually suited piracy coverage because it could be part of their general hull and machinery policies.”

AGCS covers around 12% of the roughly 30,000 tankers, container ships, bulker carriers and cargo ships insured globally. In addition to insurance issues, the carrier also explains why ships’ crews themselves need to be aware of the risks and how best to prepare for them. To match pirates’ tactics, boat crews need to be properly trained to employ defenses, such as long-range acoustic devices, securing the ship’s perimeter and maintaining speed in exposed areas, although they are strongly cautioned not to use weapons.

Key points from the study:
The study looks at general piracy trends today, piracy hotspots, insurance solutions, modern piracy methods and risk mitigation. It provides a variety of sources as well as insights from Allianz experts from every part of the Marine insurance industry who have had first-hand experience with piracy cases.

Most of the attention today is on the rise of piracy off the coast of Somalia and around the Gulf of Aden. 102 pirate attacks were reported here in the first quarter of 2009, compared to 53 in 2008. Somalia and the Gulf of Aden accounted for 61 of the total – up from 6 in 2008. Somalia is suffering from nearly 20 years of violent civil war, and its people live on an average of less than $2 a day. The causes of piracy there are so complex that the current problem is likely to continue for some time, and it is critical that ships passing through the region are well prepared and properly insured.

The region is ideal for piracy because the Gulf of Aden is the gateway to the Suez Canal, and some 20,000 tankers, freighters and merchant ships pass through it every year. Pirates are now ranging farther and farther out to sea, attacking ships off the coast of neighboring countries such as Yemen, and their impact on global shipping is growing.

The waters off Nigeria have also shown an increase in recent years, especially in the region off Lagos and the Bonny River, with 40 reported attacks in 2008 (Source: ICC – International Maritime Bureau). It is one of a few regions which are in danger of becoming a larger piracy hotspot.

Piracy has generally shown a declining trend in other areas such as Southeast Asia, often due to a concentrated international response.

The identification of pirates is often difficult, due to their use of small motor skiffs, which are hard to see on radar and can be mistaken for fishing craft. Therefore, reported data on piracy may be less than in reality.

What works to reduce piracy in one region may not work in others. An international patrol effort has done a great deal to reduce attacks in the Malacca Straits. In the Indian Ocean off Somalia, however, the area of water is simply too vast to police, so military patrols only help a little and may even escalate violence. Therefore, a solution to the current wave of piracy will need a more integrated military, political and economic effort.

The paper calls for a larger international effort to tackle the root causes of the current wave of piracy off the coast of Somalia and around the Gulf of Aden: poverty and violence on the mainland.

(www.agcs.allianz.com)