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Wednesday, 17 November 2010

Really, is your Merchant Ship insured against piracy? How do you know?

So, dear Seafarer. Shipowner, Shipmanager, regulatory Authority, Fleet Personnel Manager, Union Leader, family members and everybody else interested in this subject of seafarers going off to dangerous waters . . .  would you please like to come out with cogent statements involving not just pleasantly couched words, but hard facts and numbers,  what really the insurance protection for the man on the ship is in case of piracy or hijack? Modern day piracy, of which just about 40% takes place in the Arabian Sea waters, is now a global phenomenon. Somalia gets a lot more attention because it appears to have become a hub lately, and is closer to India, but the rest of the world is not far behind, and the "business" of hijacking ships seems to be growing. Just like other streams of crime, for example prostitution, narcotics, arms trade - this too now seems to be settling into a pattern and a system.
That's as far as the relevance to the fact that this is now another business, and all business is about numbers, so what are the numbers, and where do the numbers go? What does it mean when somebody tells somebody else that "insurance for piracy" exists on such-and-such ship?
To start with, the piracy numbers include:-
# Investment versus returns, and a whole flotilla of numbers and words persons, and also some mercenaries, to keep the whole business well-greased. Imagine, can a transaction of almost 10 million dollars (9.8 million was the reported figure) plus costs involved in enabling this payment for releasing the supertanker SAMHO DREAM (say, another 5 million dollars) have been able to move across the globe without the direct participation of a whole lot of number crunchers  and shysters all over the world, especially in the "developed' world? So, modern-day piracy is not about to simply go away, for any reason.(Source - bankers unwilling to be identified in Europe and UAE.)
#The definitions of piracy and hijacking also appear to vary worldwide, and this in turn impacts the question of whether a vessel is a total loss or not, after the incident, whether hijack or piracy. Either way, in some countries, the insured shipowner/operator has not been "ir-retrievably deprived" of the vessel, so insurance claims for piracy or hijack, even interim, can not be paid out. Never mind what happens on the ship. In addition, it is the duty of the shipowner and his Master/crew to prove that they made all attempts to mitigate losses, and whether this includes the ransom payment or not is an open issue. So, a Master and his crew, who have not been paid, not received decent food, have been under capture, whose families may be starving - they still have to prove that all attempts were made to "mitigate" losses.
# In the UAE, it is even more complex, since they demand a "special provision" for piracy. The difference between "war risk" and "piracy" is there, not sublime, but complicated. However, one can not substitute the other, so a special cover in advance will be needed. At what point does piracy become an "act of war", given the current pronouncements of the attackers, claiming that they are working for their countries? No clear answers here, either - and carrying armed guards on board through somebody else's territorial waters, does that impact right of innocent passage? What does the Master of a ship have to say, if armed guards are on his ship, and the ship is then considered "hostile" - where do the crew stand as far as insurance goes, then?
# So while "piracy insurance" may have been taken by a shipowner/operator, please remember that "even though piracy is an insured peril, the onus to prove the act of piracy for successful recovery remains with the assured, in particular to establish that the act occurred was piracy and not terrorism, i.e. that the persons committing the act did so exclusively for their own material benefit, rather than pursuing a political, ideological or religious scope."
Many of the latest episodes of piracy are defining their activities stikingly close to this.
# There is an estimate, provided by the Professional  General Insurance Research Organisation (GIRO) that each piracy attack on a merchant ship costs around 9 million dollars, and from another un-named source, that it is eventually between 10 and 15 million dollars, ransom and all costs. This is just a ballpark estimate, and rising lately. Working backwards from here, the average cost per merchant ship transiting the Suez Canal and going through the Gulf of Aden works out to between 70 and 110 thousand dollars, another rough estimate, and rising. Higher on ships carrying higher value cargoes, ofcourse, so assume a 10000 teu ship is paying about 300,000 dollars per trip each way - that's 30 dollars per teu extra costs. But what are the owners, cargo interests and seafarers getting out of this, incase of attack? That's not very clear.
# The number of seafarers kidnapped in piracy/hijack incidents as per the London-based International Chamber of Commerce’s Commercial Crimes Services was 867 in 2009, and 790 so far this year. There are some 'carry-forwards' who have been kidnapped in the previous year/years, and some simply 'missing'. However, this does not in any way provide any information on the disruption to seafarers even way outside in the Arabian Sea, in terms of mental tension and actual attacks.
# Allianz Global Corporate & Strategy, a leading insurer of ships and cargo, says that in most cases, piracy is covered under "normal" hull and insurance cover, even for ships not trading in piracy prone areas. The efficacy of this "normal" cover when a piracy or hijack takes place is very much under debate and till then, may well be slightly ineffective at best. So the solution would be to take additional cover. However, truth is that many owners or operators or charterers simply do not take additional cover when going through these areas - because special piracy covers are not easily available that offer special, flexible and tailor made cover for such ships.
# Here is a map of the piracy prone areas worldwide:-
It is clear that marine insurance is the oldest form of insurance worldwide. War risk and piracy insurance have been linked for a long time. However, war risk insurance, and also piracy, can be unilaterally cancelled by the insurer at 48 hours notice. What does the seafarer onboard know about this, is the regulator able to provide any form of guarantees here?
It is in your interest as a seafarer to actively seek out the full details of the insurance cover taken for piracy, and to see that it is kept valid throughout your tenure - which obviously you can not do. But certainly the regulators, DG Shipping, can frame some rules urgently in this context?
Or, as is often the case, keep sailing "Ram Bharose".

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