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Pirate Attacks Boost Insurance Company Revenues

Shipping hijacks in the Gulf of Aden are helping swell UAE insurers’ coffers, says lawyer.

A spate of piracy incidents hitting global shipping companies in the Gulf of Aden has inadvertently benefited UAE insurers, a legal expert claimed on Wednesday.

Chris Mills, partner and marine insurance expert for law firm Clyde & Co, told Policy that a rise in attacks had led to more businesses taking out cover for their cargo, vessel and crew.

“People are more aware of it [piracy] and the need to insure their liabilities,” he said on the sidelines of the Misappropriation and Mishandling – the headline grabbing incidents of piracy and hazardous cargoes conference in Dubai. “This leads to an increase in premium because it’s a more tangible risk.”

But the rising demand for cover, such as kidnap and hostage (K&R), was offset by the large sums that insurance companies are now paying out following an attack, Mills added.

“In that sense, it’s bad for insurers. In all the cases I have been involved in, money has switched hands between one insurer and another.”

Mills in one case he recently worked on, a shipping company whose vessel was hijacked by pirates paid a $1.8 million ransom and $1.5 million additional costs.

According to Clyde & Co figures, ship companies paid $150 million in ransoms last year after pirates hijacked a series of vessels around the Gulf of Aden and off the Somali coast. A further $150 million was shelled out for additional costs, such as chartering a vessel for delivering the money, and hiring trained crew to ensure the ransom reached the drop off point before they made the exchange.

Employing crisis management specialists to negotiate with the pirates, handle the media and deal with the captured crews’ families also contributed to the costs.

Last year, eight seafarers were killed in pirate attacks, with a further 68 injured. Meanwhile, 1,052 were taken hostage as gun-wielding hijackers targeted more ships and vessels throughout 2009.

With the number of piracy attacks expected to increase this year, Mills said demand for insurance would also rise. “The K&R stuff has really begun to take off.”