Beruflich Dokumente
Kultur Dokumente
piracy
.
on marine
insurance
February 2013
Marine Insurance EXN 332
Analyse the impact of piracy on
marine insurance.
Contents
1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Global Piracy Hotspots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3. The Economic Cost of Piracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Piracy and Marine Insurance . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Marine Insurance Policies and Piracy Coverage . . . . . . . . . . . . . . . . . . . . . . .3
5.1 Hull Insurance . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .4
5.2 War Risk Insurance . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 4
5.3 P&I insurance . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .5
5.4 Cargo Insurance . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .5
5.5 Kidnap and ransom insurance. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 6
5.6 Loss of hire/earnings Insurance. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 6
6. Cost of Excess Insurance . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
7. The implications of employing guards to insurance premiums. . . . . . . . . . . . . . . 7
8. Conclusion . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
1. Introduction
Approximately 80% of world trade currently travels by sea, representing around
93,000 merchant vessels, 1.25 million seafarers, and almost six billion tons of cargo.
In recent years, the world shipping sector is facing one of the worlds oldest crimes
against this trade, piracy. The International Maritime Bureau defined piracy as An act
of boarding and attempting to board any ship with the apparent intent to commit theft
or any other crime and with the apparent intent or capability to use force in the
furtherance of the act. It may be reasonable to assume that piracy has existed for as
long as maritime commerce has existed between states. Although piratical attacks
have changed their nature through the years, as pirates aspiration is not to steal any
more. Synchronous pirates would rather hijack a vessel with cargo and crew on
board and demand the ransom for the ship release. Golden years of piracy were at
the end of 20th century. Nowadays, piracy remains one of the biggest risks of
merchant vessels and its steadily increasing trend, poses a significant threat to world
shipping. The global shipping industry is most concerned about vessels that carry oil,
chemicals, coal, iron ore, wheat and other commodities. These vessels tend to be
more vulnerable to pirate attacks than container vessels because they ride lower in
the water and they are traveling with lower speed.
US$8.3 billion. Somali piracy cost the international community up to US$ 6.9 billion
that is a billion dollars more than Somalias GDP.
parties, the marine insurance market responded quickly to the increasing risk of
piratical incidents, providing in addition to the standard covers such as hull, cargo,
war risks policies and P&I coverage, the specialized marine policies, such as K&R
insurance or loss of hire/expenses policies.
.
5. Marine Insurance Policies and Piracy Coverage
Damage to the vessel and its equipment resulting from piratical attack might be
recovered under either hull or war risks policies. Furthermore, ransom payment might
be recoverable also under hull or war risks policies and in addition, under K&R policy,
if such is obtained. Also loss of hire/earnings due to piracy policy provides coverage
to the loss of hire/earnings caused by suspension of the ships operation while the
vessel is detained. There are six basic types of ocean marine insurance:
5.1 Hull Insurance
It is often split into a Hull & Machinery (H&M) policy and an Increased Values (IV)
policy which insures the remainder of the ship for total loss only. The insured perils
clause of hull and machinery policies includes physical loss of or damage to the
Insured Vessel (as defined in the Marine Conditions), and third party liabilities, costs
and expenses caused by many reasons including piracy. Piracy claims may
contribute to both H&M and IV policies. Total losses arise from theft of the vessel or
from scuttling due to pirate attack and partial losses can come from damage incurred
to the ship even if the pirates were unsuccessful. Furthermore, it has been argued
that payment of ransom might be illegal, therefore, could not be recovered under the
marine insurance policies. It estimated that piracy has doubled the cost of hull
insurance.
5.2 War Risk Insurance
Today the great majority of ships are insured against piracy under their war risks
insurance. War risks insurance is designed to provide coverage to the loss or
damage of the vessel due to acts of war. The shipowner purchasing the additional
coverage to the hull policy that excludes violent theft, piracy and barratry will have to
obtain the Institute War and Strikes Clauses amended by the Extension Clause in
order to be insured against the peril of piracy. There are practical advantages to
including piracy as a war risk. Deductibles are typically not applied to claims to war
risks insurance policies, but are applied to claims on marine risks policies. It also
protects the ship owners marine risks claims record in the event of a claim. Insurers
can charge an additional premium if a ship trades in pirate infested seas. The war
risks additional premium areas enables cover to be paid by those that bring the risk
exposure (charterer or customer). War risks insurers will often reduce rates for
voyages through the listed areas if they are satisfied with the piracy prevention
measures in place and / or if K&R cover is purchased with an appropriate limit.
Until 1982, piracy was a war risk under English hull clauses. Under the 1982 ITC Hull
policy wording, it was adopted as a regular hull risk. In 2005, optional clauses were
introduced by the Joint Hull Committee which excluded piracy from the hull policy,
together with a corresponding write-back clause for the risk under the war policies.
Today, London market clauses (Institute Time Clauses Hulls) provides an option to
cover piracy under hull or war policies.
Since May 2008, when Gulf of Aden was classified as a war risk area by Lloyds
Market the cost of war risk premiums have increased from $500 per ship, per
voyage, to up to $150,000 per ship, per voyage, in 2010.
Furthermore, faster ships are cheaper to insure, as they are more challenging for
pirates to attack. Anything over 15 knots tends to be fast as far as the pirates are
concerned.
8. Conclusion
Summarizing, the industry rates for this insurance protection are increasing because
the ransom demands are going up and there is a significant increase in pirate activity.
Nevertheless, the marine insurance market responded quickly to the increasing risk
of piratical incidents, providing the standard covers such as hull, cargo, war risks
policies and P&I coverage and the specialized marine policies, such as K&R
insurance or loss of hire/expenses policies. The shipowner or cargo owner might
obtain a sufficient coverage that will allow him to recover the losses suffered as result
of the piracy. However, such insurance might be very costly, in addition to the fact
that to obtain such coverage many different policies must be acquired. But
considering the alternative, the policies are very affordable. A standard policy offers
$3 to $5 million dollars in coverage. Without insurance protection, the only other
option for many of these ship owners is to take a longer route which would inevitably
drive up their operating costs substantially. And there still is no guarantee that the
pirates will not move to attack the new route. Additionally, more and more ship
owners are turning to the use of armed guards to repel the pirates. And we are
seeing that when ships have had armed guards on board, they are often successful
at repelling the attacks. So shipowners/cargo owners in order to deduce cost of
insurance they employ an armed security team.
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