Increased piracy will raise operational costs for shipowners who transport goods in "high-risk" areas—and ultimately their customers—but will not have a significant impact on the marine market as a whole, experts say.
Insurers have also called for extra vigilance on vessels as recent attacks indicate an increase in pirates' sophistication and scope of attack.
More than 45 vessels have been hijacked worldwide so far in 2008, compared with 18 in 2007, according to a spokesman at the Londonbased International Maritime Bureau Piracy Reporting Centre.
This year, 30 vessels have been seized by pirates in the Gulf of Aden alone, the IMB reports.
With an average insured loss of between $2 million (€1.6 million) and $3 million (€2.3 million) per incident, the cost to insurers from piratical activity this year has increased to around the $100 million mark (€77.8 million), said Clive Washbourn, head of marine at the Lloyd's of London insurer Beazley Group P.L.C.
To reflect this, the past six months has seen war cover for a typical Gulf transit—excluding piracyrise to around 0.04% of the value of a transit, up from about 0.01%, with rates including piracy up to between 0.1% and 0.25% from 0.04% he said.
"[This] is an enormous amount of money," said Mr. Washbourn, who is also chairman of the Joint War Committee, a body that represents the interests of the Lloyd's Market Association and the International Underwriting Association in London.
The cost would ultimately be passed on from the shipowner to the charterer and so the cost of carriage of goods will inevitably increase, he added.
Direct insurance costs for charterers using the Gulf of Aden have also increased over the past six months, with insurance rates to cover war loss of hire—whereby a charter can insure against the hire costs of a held vessel for up to 90 days—up to 1% per call from 0.01%, Mr. Washbourn said.
A call is the mutual premium rate charged to shipowners for membership of a protection and indemnity club. It is usually calculated at a rate per metric ton, but varies according to the risk an individual member's vessel represents to the club.
"But we have a very flat hull, cargo and marine liability book at the moment. Marine and aviation war rates are flat except for those areas, like the Gulf of Aden, where we have gradually edged the prices up to reflect claims activity," he added.
A statement in November by corporate security risk consultants BGN Risk—a division of Manchester, England-based BTG Intelligence Ltd.— said that the unprecedented rise in piracy off the coast of east Africa could cost shipowners and businesses using the route an extra $400 million (€311 million) annually in specialty marine risk insurance.
The figure reflects an average cost of $20,000 (€15,550) in premium level per vessel per voyage, based upon research carried out among brokers, underwriters and marine lawyers from the London market.
Respondents indicated that should these attacks continue to happen, this would have a knock-on effect and rates in all likelihood would continue to increase, said BGN Risk Partner Liam Morrissey.
While hull and war clauses cover physical loss or damage from piracy, and ransom costs are dealt with by specific coverage, there has been a potential void in cover for the financial impact of business interruption and loss of earnings to cargo owners, shipowners and charterers, said Chicago-based Aon Corp. in a statement.
In response, Aon has developed a standalone policy for shipowners, charterers and cargo owners— underwritten by Lloyd's insurers—to fill that void, it said.
The attack last month on the Saudi-owned oil tanker MV Sirius Star, 520 miles southeast of Mombasa, Kenya—well beyond the Gulf of Aden—made it the largest vessel ever seized by pirates. It marked an increase in the pirates' sophistication and scope of attack, said David Partner, associate director of programs and facilities at Lloyd's of London broker Miller Insurance Services Ltd.
Since the hijacking of the Sirius Star, Chris Spencer, director of loss prevention at the Standard Club—a London-based protection and indemnity club—has advised all of his members that travel through the southern Red Sea, Gulf of Aden and Indian Ocean to stay at least 600 miles away from the coast, whereas previously he recommended members keep a distance of 300 miles.
Julie is a law graduate who qualified with Price Waterhouse in 1994. Julie joined Smith & Williamson in 1997 and became a partner in 2001. With Mike Stevenson, Julie set up Middleton Partners offices in Salisbury and Southampton, both of which are now part of Begbies Traynor.
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