As Piracy Insurance Gets Pricier, Owners Try Guards

Fifth in a series

With twice as many attacks in the first three months of this year than in the same period last year, piracy has become a huge — and costly — problem for ship owners, especially those whose vessels go near Somalia.

Ship owners, like all businessmen, look at the bottom line: Time is money, and when pirates attack one of their ships, owners typically just want to get the whole thing over with as quickly as possible. So they pay the ransom.

"The level of ransoms that are being demanded at the moment, although they're significantly higher than they were maybe 12 months ago, are still at a level where it's cheaper, easier and more efficient to just pay the money to get the ship released rather than run the risk of an escalation or a hijacking," says Peter Townsend, who directs the marine division of Aon insurance.

It is possible, after all, to get insurance against piracy. If a Somali pirate shoots a hole in your ship, hull insurance covers the cost of repairs. A kidnap-and-ransom policy covers the cost of negotiating with the pirates, medical care if someone gets hurt and the expenses involved in getting the ransom payment delivered.

But piracy insurance premiums are about 10 times what they were a year and a half ago — due entirely to the increased threat off Somalia. And a small but increasing number of owners have decided it's time to fight the pirates.

Using Armed Guards

Per Nykjaer Jensen, the owner of a Danish shipping line called Shipcraft, is sending his vessels out with six or eight armed guards aboard. He says other ship owners who face a pirate threat should do the same.

"I don't expect the guards on board the commercial vessels to be soldiers in combat," he says. "They should simply be the dog in the house that keeps the burglar away."

Until help arrives, that is, from the naval forces now on patrol in the Gulf of Aden.

Private security firms from Britain and the United States have begun providing armed guards to ship owners under contract. A handful of Israeli guards recently fended off a pirate attack on an Italian cruise ship off Somalia.

Most shippers are still cool to armed guards. And the International Maritime Bureau recommends against it — in part because of the legal issues involved, says IMB Director Pottengal Mukundan.

"If you are armed and you fire at what appears to be a boat chasing you and you kill someone on board the boat, [and] he turns out to be, let's say, a fisherman, it creates a lot of complications for the owners themselves," Mukundan says.

Plus, if pirates face armed resistance from the ships they're targeting, they could just start bringing along bigger weapons.

Dangers Of Escalation?

Jensen of Shipcraft says some of his colleagues have warned him about the dangers of escalating the pirate fight. He doesn't buy their argument.

"I just said, 'Hello, guys, excuse me. What could escalate?' Somebody is climbing on board your vessel and pointing at you with a machine gun. I mean, it cannot go much further. So if a warning shot in the air or a number of warning shots in the water just in front of the boat could stop it, then I would not say it has escalated, it has decreased."

Jensen and other ship owners still need anti-piracy insurance, but their premiums will be lower if they provide their own onboard security. Some brokers, in fact, are now offering an anti-piracy package, with three components: the insurance, armed guards and a special deal from a law firm — for all the legal issues that will arise if the guards do engage the pirates.

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