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Piracy - An Ancient Risk With Modern Faces
Piracy - An Ancient Risk With Modern Faces
Piracy - An Ancient Risk With Modern Faces
Piracy - An Ancient Risk With Modern Faces
Piracy - An Ancient Risk With Modern Faces
Piracy - An Ancient Risk With Modern Faces
Piracy - An Ancient Risk With Modern Faces
Piracy - An Ancient Risk With Modern Faces
Piracy - An Ancient Risk With Modern Faces
Piracy - An Ancient Risk With Modern Faces
Piracy - An Ancient Risk With Modern Faces
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Piracy - An Ancient Risk With Modern Faces

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The study examines critical areas of the current wave of piracy, including trends, insurance issues, attack methods, and risk mitigation. It provides an outline, essential facts and figures, and …

The study examines critical areas of the current wave of piracy, including trends, insurance issues, attack methods, and risk mitigation. It provides an outline, essential facts and figures, and insights from Allianz in-house experts along with key sources for further information.

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  • 1. PiracyAn ancient risk with modern facesAn insurer’s perspective from Allianz Global Corporate & Specialty
  • 2. Foreword Piracy: An ancient risk with modern faces Piracy: An ancient risk with modern faces Introduction Foreword Introduction Few risks capture the public imagination like piracy. Since The current wave of piracy is receiving a great deal of earliest times, organized societies have feared bands of attention. Even if the ability of pirates to capture headlines lawless robbers in unprotected areas of land and sea. Pirates far outweighs their ability to capture ships, they represent a also have often represented a law unto themselves, which is very real risk for ships and crews in the regions where they why stories about them merge that fear with romantic are active. As an insurer, Allianz takes a great interest in images of rugged individuals. Amid all this emotion, there working with shipping companies to ensure that people, are hard facts and very real risks. Anyone who has been boats and cargo arrive safely and quickly at their involved with actual pirates knows the grim reality they live destinations. in and the damage they can inflict. Generallyspeaking,pirateattacksareextremelyrare.Therewereroughly300 reportedactualorattemptedpirateattacksworldwidein2008.The92actualor Today,thehighseasareoneofthelastlawlessfrontiersonearth.Despitethecurrent attemptedattacksonthenearly20,000largeshipsthatpassedthroughthecriticalArthur E. Moossmann economicslump,worldwideshippingwillcontinuetogrowoverthelongterm, GulfofAdenregionin2008isasmallnumber.Nonetheless,therehasbeenasharpAllianz Global Corporate Specialty offeringmorepotentialtargets,evenaspiratescontinuetoadaptnewtechnologiesto riseinpiracyintheSomaliacoast/GulfofAdenregionsincethesummerof2008.Global Marine Head improvetheirowncapabilities.AllianzGlobalCorporateSpecialty,theindustrial Attemptedattackstherejumpedfrom55in2007to132in2008,andtherewere61 andspecialtyinsurancearmoftheAllianzGroup,isoneoftheleadingprovidersof successfulattacksinthefirstquarterof2009. marineandtransportinsurance,engagingclientsintheshippingindustryina Observerscannotsaywhetherthisisapeakriseorpartofageneraltrend.Piracy dialogueabouttheirrisks,includingpiracy.ThatiswhyIampleasedtosharewith arisesfromthesamebasicingredients:poverty,alargeareaofseadifficulttopatrol youthisstudyonpiracyinordertosupportthatdialogue,andIwelcomeyour andatraderouteofferingasteadyflowoftargetships.Somaliaisstableonlyinsome feedbackonthistimelytopic. placesandiselsewhereruledorfoughtoverbyclans,militias,religiousgroupsanda varietyofotherorganizations.Asaresult,itissufferingfromnearly20yearsofviolent civilwarwhichhasplacedweaponsinthehandsofmanydesperatepeoplewho mostlyliveonlessthan$2aday.Otherregionswithsimilarproblemsarealsoatrisk. June,2009 Whenattacksdooccur,theyleadtosignificantlossesandnegativepublicityfor shippingcompanies.Becausepiratesworkalmostexclusivelyininternationalwaters, Contents normalcriminal prosecutionishighlycomplex.Armedresistancewillusually escalatetheviolenceandoftenmeansmorelegalproblemsfortheownersoftheship underattackthanfortheattackers. 02 Foreword Forinsurers,allthismeansbothmoreintensivedialogueswithclientsabouthow 03 Introduction theymitigatethisriskandinsurancesolutionsthatdealwiththedistinctrisksof 04 The new faces of piracy piracy.Beyondthat,itisintheinterestofgovernments,business,insurersand,of Whilepiracyhasincreasedinsomeregions,itisdecliningelsewhere.The course,thepeoplenavigatingtheworld’soceanstoworktogethertohandlethis recentjumpintheSomaliacoast/GulfofAdenarearepresentsaseriousconcern. challengeinordertoreducethethreatofpiracyonthehighseaandtobringorderto 08 Working for risk solutions internationalwaters. Piracyrepresentsaspecificriskforshipstransitingcertainregions. Piracy: An ancient risk with modern faces examinescriticalareasofthisthreat, Insurancesolutionsareneededthattacklethisspecialchallenge. includingtrends,insuranceissues,attackmethodsandriskmitigation.Nostudyon thesubjectcanbeexhaustivebecauseitishighlycomplexandthesituationis 10 From Hull to War insurance changingallthetime.Thispaperthereforeprovidesanoutline,essentialfactsand Allianzisremovingpiracyriskfromgeneralhullandmachinerypoliciesand figuresandinsightsfromAllianzin-houseexpertsalongwithkeysourcesforfurther placeitwhereitbestfits–withwarinsurancepolicies information.Journalistsandclientswhowouldlikemorein-depthviewsandcurrent 12 Modern attacks dataareinvitedtocontactusandspeakwithourexperts. Alongwiththeshiftinthelocationofpiracyhascomeachangeintheir methodsandtargets.Somalipiratesarewellarmedandhighlymotivated. 16 Mitigating piracy risks Shipsarereviewingtheirtacticsforavoidingorfendingoffpirateattacks. Therearenewmethodsaswellassomeverybasicmeasurestheycanemploy. 18 Conclusion 19 References / for further reading2 3
  • 3. The New Faces of Piracy Piracy: An ancient risk with modern faces Piracy: An ancient risk with modern faces The New Faces of Piracy oneineverysixvesselsattackedwas TheMalaccaStraits–amajor successfullyhijacked.Thisratedecreased strategictraderouteandanother tooneineightforFebruary2009and formerpiracyhotspot–hasreported onein13forthemonthofMarch.On onlyoneincidentthisquarter.Thedrop average,oneineightattacksinthefirst inattacksisduetoincreasedvigilance quarterwassuccessful. andpatrollingbythesurrounding TheeastcoastofSomaliarecorded20 countriesIndonesia,Malaysiaand attacksinthefirstquarterof2009,with Singaporeandthecontinued 18oftheincidentsreportedinMarch precautionarymeasuresonboardships. alone−includingfourhijackings.This Thesituationhasalsoimprovedin comparestothelastquarterof2008in Bangladesh(Chittagong)andTanzania whichsevenincidentswerereportedin (DaresSalaam),withaslightdecrease thisarea,includingtwohijackings. inthenumberofincidentsreportedin Mostpiratesareaged20–35yearsold thefirstquarterascomparedtothe andcomefromtheregionofPuntland,a correspondingperiodlastyear.Inthefirst regioninnortheasternSomalia.The threemonthsof2009onlyoneincident EastAfricanSeafarersAssociation wasreportedforBangladeshcompared Ralf Zibell, Senior Risk Consultant Marine. estimatesthatthereareatleastfive tothreeduringthesameperiodlast Zibell was involved with piracy issues pirategangsandatotalof1,000armed year.VesselscallingatTanzania while sailing on liner vessels for nearlyThe New Faces of Piracy men.AccordingtoaBBCreport,pirate reportedtwoincidentsascomparedto two decades. Recently he has supported a gangsgenerallyconsistoflocal fourduringthesameperiodlastyear. recovery mission in the Straits of Malacca. fishermen,ex-militiamenandtechnical Piracyriskhasclearlymovedfrom expertswhooperatehigh-tech eastandsoutheastAsiatoSomaliaand equipmentsuchasGPSdevices. theGulfofAden.Zibellfeelsthatwhat Key statistics wassuccessfulinIndonesiaandthe n 102 attacks were reported in the Todays major focus is on Somali pirates like these who took Yemeni fishermen hostage in April this year. Growth and decline in other regions MalaccanStraitscannotbeeasily first quarter of 2009, compared Photo: Associated Press PiracyriskisnotjustconfinedtotheGulf replicatedinthisdestabilizedregion: to 53 in 2008A dramatic increase in attacks by Somali pirates has led to a near doubling ofAdenandSomalia.Nigeriacontinues “Suchco-operationdoesnotappearto n Somalia and the Gulf of Aden tobeahighriskarea.Inthefirstquarter beanoptionintheGulfofAdenandin the number of ships attacked during the first quarter of this year of2009theIMBreceivedreportsofonly Somalia.AsSomaliaisvirtuallylawless accounted for 61 of the total – up from 6 in 2008compared with the same period in 2008. This shift has drawn attention sevenincidents,althoughunconfirmed andwithoutaneffectivegovernment, reportswouldsuggestthatatleasta therearenoagenciestherethatare n In the first 3 months of 2009, 34away from other regions that are either known to represent a pirate threat vessels were boarded, 29 vessels further13attackshadoccurredinthe preparedtopoliceagainstpirateor at risk of increased activity. Some areas have also been able to report sameperiod.Nearlyallincidentshave attacks.Asaresult,wecanonlyforesee fired upon, and nine vessels hijackedsuccess stories, in which pirate attacks have declined significantly. takenplaceonvesselssupportingand aworseningsituationinthearea.” connectedtotheoilindustry.TheIMBis n In the first quarter of 2009 a total urgingvesselstoreportanyattacksso of 178 crew members were taken thattheNigerianauthoritiescanbetter hostage, nine were injured, fivePiracyworldwideiscontinually majorityofincidents,theattackerswere underreportingmaybeacauseofmore kidnapped, and two were killed prioritizeandresourcetheirlawmonitoredbyinternationalbodiessuch heavilyarmedwithgunsorknives.In concern:attemptedpirateattacksgo enforcementagenciestorespond. n Indonesia, which held the recordasthePiracyReportingCenter(PRC)at addition,violenceagainstcrew unnoticed,”heexplains.“Anyboatthat Peruhasalsoseenanincreasedlevelof for the highest number of piracytheInternationalMaritimeBureau memberscontinuedtoincrease. speedsuponapproachorthatcircles incidentsinitswaters,withseven attacks between 2003 and 2007,(IMB).Accordingtoareportissuedby RalfZibell,marineriskconsultantat theship,forexample,shouldbe attacksreportedtothePRC,allofthem saw only one incident reportedtheIMBtherewasatotalof102 AllianzGlobalCorporateSpecialty, reportedtotheauthorities.” successful.Thelastquarterof2008saw in the first quarter of 2009incidentsreportedtothePRCinthefirst saysthat“under-reportingfromvessels onlyfourincidentsreported.threemonthsof2009,comparedto53 involvedinattempted–oractual– The latest threat: Somalia However,somecountrieshavemade Piracy Activity 2003-2008incidentsinthefirstquarterof2008. piracyincidentsisstillagreatconcern. Thisgrowthinthefirstquarterof2009is greatstridesinreducingpiracyrisk.Thequarterlyreportalsosaidattacks Manyvesselsdismisstheideathat duealmostentirelytoincreasedSomali 500 Attempted and successful attacks Indonesia,whichheldtherecordforthe Somalia/Gulf of Adenincreasedbyalmost20%overthesame pirateshavefollowedthemortriedto pirateactivityofftheeastcoastofSomalia World highestnumberofpiracyattacks 400periodlastyear. engageasjustboatsthathavecometoo andespeciallyaroundtheGulfofAden. between2003and2007,sawonlyone Worldwideatotalof34vesselswere closetothem.” Thetwoareastogetheraccountedfor61 300 incidentreportedinthefirstquarterofboarded,29vesselsfiredupon,andnine Zibellisamastermarinerwithmany attacks,comparedtojustsixincidents 200 2009,comparedtofiveincidentsinthevesselshijackedthroughMarchof2009. yearsofexperienceatseahimselfand forthesameperiodin2008. correspondingperiodin2008and21in 100Atotalof178crewmembersweretaken hasactuallybeeninvolvedinfendingoff Forty-oneincidentswerereportedin thefirstthreemonthsof2004.hostage,ninewereinjured,five piratesaswellasrecoveringstolen theGulfofAdenregion,includingthe 0 2003 2004 2005 2006 2007 2008kidnapped,andtwokilled.Inthe freight.“Therealreasonfor hijackingoffivevessels.InJanuary2009, Year4 5
  • 4. Piracy Hotspots Piracy: An ancient risk with modern faces Piracy: An ancient risk with modern faces Piracy Hotspots Nigeria: Over the last couple of years the Bangladesh: Number of attacks currently number of attacks around Nigerian ports has falling. Particular focus of pirates is on increased, especially in the Lagos and the ships anchoring in Chittagong area. Bonny River regions. Philippines: The Philippine archipelago Peru: While the number of attacks off the has a very long history of piracy. Lately, coast of Peru remains fairly low at seven in rates have remained constant at six to 2008, it represents a significant increase, and seven reported attacks a year. the trend is being monitored. Indonesia: Attack levels stable and fairly Brazil: There is a regular but low rate of low lately. Due to vast expanse of water attacks around Santos, and ships’ crews are covered by the country and variety of on alert in the region. ships, many attacks may go unreported, so ships are advised to stay alert. Tanzania: The trend for Somalia/Gulf of Aden: The Horn of Africa has seen major Malacca Straits: A few years ago, this pirate activity has remained growth in piracy. Somali pirates are well armed and focus was the chief hotspot worldwide. constant at about a dozen a on ransom of the vessel and the crew. Attacks are taking International patrols since 2005 have year in waters close to the place farther and farther from the coast, indicating that brought down piracy considerably. The capital Dar es Salaam. pirate skiffs are now launching from larger “mother ships”. region is nonetheless still “at-risk”. Global Piracy Hotspots Worldwide, piracy remains rare. Rates rise and fall in specific areas due to Hotspots: local conditions such as poverty levels, Attempted and actual attacks 2003-2007 vs. 2008 government stability and proximity to 100 major shipping lanes. 80 Average 2003 - 2007 2008 60 40 20 0 Gulf of Aden Nigeria Indonesia Somalia Tanzania Bangladesh Vietnam Malaysia India Phillippines Ghana6 7
  • 5. Working for Risk Solutions Piracy: An ancient risk with modern faces Piracy: An ancient risk with modern faces Working for Risk Solutions beingtransported.Thoseshippinglines piracyisbeingtransferredfromthehull thatcontinuetotraversetheGulfof tothewarpolicy.Discussionsarealso Adenwillprobablyseeahikein goingonabouttheadaptationof premiums. kidnapandransominsurancetothis “WeatAllianzareheretoprovidea modernsituation.Ultimately,ifarisk servicetoourclientsbutatasensible exists,itneedstoappearinthepricing premiumforareasonablerisk,”says orwordingofinsurance.Justcallinga McCarthy.“Thisiswhywewillcontinue riskraredoesnotmeanitwillnot towatchpiracydevelopmentscarefully, happen.Forthisreason,heightened particularlyintheGulfofAdenand awarenessoftheproblemneedstobe Somalicoastregion.” coupledwiththerightrisksolutions. Wanted: more flexibility Before1983,piracygenerallywas coveredunderwarriskpoliciesand excludedfromhullpoliciesbutsince then,ithasgenerallymovedbackinto Daniel McCarthy, Marine Hull hullcoverage.IntheLondonmarket, Underwriter. McCarthy is a member of optionalclausesbegantoappearthat the Lloyd’s Market Association Joint WarWorking for Risk Solutions excludedpiracyfromhullpoliciesand Committee and is currently occupied with wereintendedtotransfertheperilback core insurance issues surrounding piracy. towarrisk.However,mostunderwriters didnotadopttheoptionalclause, largelyleavingpiracytoremainunder hullpolicies.MarineinsurersatAllianz Basics of ship insurance Shipping companies and insurers both want smooth sailing nowwantthattochange.Theywantto When it comes to insuring an ocean-going ship, there are a number of different seepiracyriskmovedintowar coverages available. In general, the different aspects of a ship, its crew and itsIn the language of insurance, piracy is a “peak” risk. This means insurancepolicies(seep.10FromHull activities would be covered by the following types of insurance: toWarinsurance).that, while its probability is very low, potential losses are relatively Dr.SvenGerhard,globalheadofhull n hull to cover the physical damage of the shiphigh. It is also not equally spread around all over the world, but insuranceatAllianzGlobalCorporate n third party liability Specialty,saysthat“hullandmachineryrather concentrated around specific regions, and the methods and n protection and indemnity (PI) to cover the crew etc. - this is traditionally policiesarenotflexibleenoughtodealtargets of the pirates vary as well. This makes it difficult to include withpiracyriskanditshouldtherefore provided by specialized PI Clubs as well as specialist insurers such as Allianzpiracy risk as part of a general insurance policy, so it is important to bemovedtowarinsurancepolicies.” n loss of hire (comparable to business interruption insurance) to cover any Thetransitiontowarriskcoverageoffind new ways of dealing with this unique challenge. earning losses which might occur as the result of a shipping accident with piracyriskscouldbehelpfulforinsurers subsequent delays etc. andpolicyholdersalikebecauseit wouldclarifyambiguityabouthow Finally, ship owners can purchase separate war cover which is in many cases bought piracyiscovered. specifically to cover piracy attacks. Currently,shippersthatdonothaveLastyearpirateshijacked49ships,took 2007andinthefirstquarterof2009the shippinginsurancebasics).Premium separatekidnapandransominsurance Due to the high risks and large sums of money involved, ocean-going ships are889crewmembershostageandfiredon areaaccountedfor61outof102attacks. increasesareonlyonepossiblereaction mayhavepiracyransomcoveredby usually insured on a subscription (or coinsurance) basis. This means that the risk isanother46vessels,accordingtothe DanielMcCarthy,marinehull topiracy,buteachinsurerwill “generalaverages”,avoluntary spread over a number of different insurers: each insurer only writes a certainInternationalMaritimeBureaus(IMB) underwriteratAllianzGlobalCorporate approachthisissuedifferently.Allianz agreementbytheowner,charterers, percentage – or a line – of the total risk, thereby limiting the exposure for thePiracyReportingCenter,with111 SpecialtyisamemberoftheLloyds takesabroadviewthatencompasses insurersandotherintereststopaya individual companies.incidentstakingplaceintheGulfof MarketAssociationJointWar clientdialogueaboutriskand proportionateshareofavesselsAdenoffthecoastofSomalia. CommitteeinLondon.TheJointWar integratedrisksolutionsratherthan expenses.However,generalaverageis Another layer of complexity is added when the ship carries cargo. The cargo itself is Furthermore,thetypesofattacks CommitteeconsistsofLondon-based generalratechanges. verydifficulttoapplyandisnot not insured by the ship owner, but by the owners of the cargo – which in the case ofhavechanged,withpirates–more insuranceunderwriterswhomeetevery Someshippinglineshavealready specificallydesignedtoaddressransom a big ocean-going cargo carrier can be quite a large number of parties with a varietyheavilyarmedthaninpreviousyears– quartertoexchangeinformationonwar startedtoavoidtheGulfofAdenand threats. of different insurers. Therefore maritime law has introduced the principle of generalattackinglargershipsandgoingfarther risk,focusingatthemomentespecially haveoptedtogoaroundtheCapeof Inordertohandleanygapsin average which is particularly relevant for emergency situations when part of theouttosea.Theirfocusisalsomoreon onpiracy.McCarthysaysthatthe GoodHope,whichaddsaroundthree coveragethismayleadto,intheLondon ship or the cargo have to be sacrificed to save the whole. In that case and subject toransomthanongoods,unlikeother growingriskofpiracyislikelyto weekstoeast-westtransittimes.The marketwhichunderwritesmostmarine the contract terms, all parties jointly share in the common loss incurred.regions.Thenumberofincidentsin increaseinsurancepremiums,aswell effectisthatoperatingcostsareraised riskpolicies–inabout80%ofcases,2008representsan11%increaseover asthecostofshipping(seeboxon andultimatelythepriceofthegoods8 9
  • 6. From Hull to War insurance Piracy: An ancient risk with modern faces Piracy: An ancient risk with modern faces From Hull to War insurance John R. Barnwell, Global Ocean Cargo Product Leader. Located in New York, he has had over 18 years experience inFrom Hull to War insurance marine insurance. War insurance covers various forms of armed conflicts, including not only piracy but also rebellions and insurrections.Dr. Sven Gerhard, global head of hull insurance at AllianzGlobal Corporate Specialty, believes that it is now time toremove piracy risk from general hull and machinery policiesand place it where it best fits – with war insurance policies.Dependingonneeds,“war”riskscan andthelevelofrisk–aswellaslevelof underwriting–cannotarrangemore commentsDr.Gerhard.“Japan,Sweden carryingandsomakenoattempttoincludenotonlylossesduetoarmed coverage–canbemoreflexibly flexible,individuallysuitedpiracy andNorwaydothis,anditistimethat stealit.Theyjustwanttomakeaquick,conflictsbetweencountriesbutalso underwritten,andthereforemore coveragebecauseitispartoftheir therestofusfollowedsuit.” high-valuetransaction.Asaresult,the Dr. Sven Gerhard, Global Hull Liabilitiesduetootherviolentsituationssuchas flexiblypriced. generalhullandmachinerypolicies, JohnBarnwell,oceancargoglobal majorityofcargoisunaffected,unlessit Product Leader. Dr. Gerhard is currentlyinsurrectionsandpiracy.Warinsurance Warriskpoliciestypicallyarepaid whichhavefixedtermsandprices.As productleaderatAllianzGlobalCorporate isperishablegoods,”heexplains. co-writing a book on transport insurancedoesnotcovermilitaryforces,their pertransit,andunderwritersoften thenatureofpiracyriskischanging, Specialty,predictsthatwiththe law and holds several honorary positionsmachineryoractivities.Insteaditis chargeadditionalpremiumfortrips insurancepoliciescoveringtheserisks increasingnumbersofattacksonshipsin in various German marine institutions.usuallywrittenforciviliantransport throughhigh-riskareas.TheGulfof alsoneedtochange.” areasliketheGulfofAden,manyinsurersindustriessuchasshippingand AdenhasbeenontheLloyd’sMarket aregoingtoberevisitingtheirinsuranceaviation,inwhichitmaybenecessary AssociationJointWarCommittees Cutting out the ambiguity coverconcepts.Asaresult,hesays,totransitthroughat-riskzones. high-risklistsinceMay2008. Dr.Gerhardalsosaysthatclaimsarising brokers,clientsandinsurerswillhaveto Dr.Gerhardsaysthatthereare “Therearealotofshipping frompiracyattackswouldbeeasierto workcloselytomakesurethattheyhaveseveralproblemswithincludingpiracy companiesouttherethatarepayingfor settleifpiracyriskwasconfinedtojust therightcoverfortheirincreasedriskingeneralhullandmachinery piracycoverthatdonotneeditaspart onepolicy–warinsurance. exposures.policies.Firstly,hepointsoutthathull oftheirhullandmachinerypolicies,Dr. “Havingpiracyriskconfinedtoone Barnwelladdsthatcargoclaimsandmachinerypolicieschargeafixed Gerhardexplains.Conversely,thereare policyinsteadoftwocutsoutalotofthe shouldnotbelargelyaffectedbytherisepriceyearonyear,irrespectiveofa alotofvesselsthatareexposedtohigh ambiguityanduncertaintythat ofpiracyincidents.“Inthemajorityofvessel’sriskofsufferingapirateattack. levelsofpiracyriskbecauseofthe customersandinsurershaveregarding incidences,piratesarenotinterestedinWarpolicies,however,aremoreflexible, routestheytravelthat–undercurrent thescaleofanyliabilityonaclaim,” theactualcargothattheseboatsare10 11
  • 7. Pirate Attacks Piracy: An ancient risk with modern faces Piracy: An ancient risk with modern faces Pirate Attacks clientsduringpiratesituations.“In encompassesoveraquarterofthe Somalia,piracyhasbecomeanindustry, IndianOcean,whichmeansthatitis andalargenumberofpeoplemakea impossibletopolice. livingfromit,“hesays.“Thepiratesare Thealternativeroutetousingthe knowntoreceivetip-offsfromcontacts Gulf—steamingaroundthesouthern atportsintheGulfofAden.Theyuse tipofAfrica—wouldaddaround2-3 speedboatswithverypowerfuloutboard weekstothejourneytime,andwould motorstoapproachtheirtarget,and hiketransportationcosts. sometimesthesearelaunchedfrom Inmid-December2008,theUN muchlarger‘motherships’onthehigh SecurityCouncilapprovedaresolution seas.Naviescanprovidegreater allowingcountriestopursueSomali protection,buttheareaistoolargeto piratesonlandaswellasatsea–an monitorconstantlywithoutthehelpof extensionofthepowerscountries localenforcementagencies,andthey alreadyhavetoenterSomaliwatersto arelargelyineffective.” chasepirates.ButaslongasSomalia DanielMcCarthy,marinehull continuestoexistwithoutaneffective underwriteratAllianzGlobalCorporate government,manybelievelawlessness Paul Newton, London Head of Hull and Specialty,hasbeencarefullyobserving withinthecountryandoffitslengthy Yacht Underwriting. Newton has 21 years thesetrends.He notesthatpirates have coastwillonlygrow. of experience in marine insurance andPirate Attacks alsobecomemoresophisticated.“They Piracyisconsideredtobeoneofthe has been involved with recent piracy regularlyattackcommercialvessels oldestkindsofcrimesagainst events within the Allianz Group. usingthelatesthi-techequipmentsuch assatellitephonesandGPS,”heexplains. “Theyarealsoheavilyarmedwith rocket-propelledgrenadesandAK-47s.” Somalia/Gulf of Aden in Focus A ship off the east African coast in April followed by an unidentified small boat thought to belong to pirates - fortunately without attacking “It’sdifficulttocontrolthesegroups Photo: Associated Press asSomaliacontinuestoexistwithout n Per capita income in Somalia (2008): $600. Total GDP 2008: $5.575 billion.While the number of piracy attacks is increasing, particularly around aneffectivegovernment,”McCarthy n According to the World Bank, as much as 73% of the Somali population lives on a continues.“We’realsotalkingabouta daily income below $2.the Gulf of Aden and the waters off the Somalian coast, the types of vastamountofwatertopatrol–more n Approximately 11 percent of the worlds seaborne petroleum passes through theattack are also changing. The latest reports show that the pirates are thanmostpeoplerealise.Thehighest Gulf of Aden on its way to the Suez Canal or to regional refineries. profilevesselwascaptured450nmoffmore likely to carry automatic weapons and grenades as well as knives n Largest ship captured to date: 332m length, carrying its full complement of two thecoastofKenya.” million barrels of crude oil worth at least $154million, hijacked 450 nautical milesand machetes, and that crews are more likely to be held hostage. McCarthysaysthat“ifclientshaveto southeast of Mombasa, Kenya.Furthermore, all boats are liable to attack – from yachts to tankers – navigatethearea,wediscusswhat n Around 20,000 oil tankers, freighters and merchant vessels pass along the crucial meansofprotectiontheycanemployinbut bulk carriers are the most common targets. Research also shows shipping route each year. additiontousingthecoalition-patrolled n An estimated $25 million to $30 million was paid in ransom to Somali pirates in 2008.that, pirates are largely uninterested in the ship’s cargo – holding the channel.Theyneedtoplantheirroute n Many of the captured ships sit a few miles off a 230-mile stretch of Somali coastlinevessel for ransom is enough for them. inadvanceandcontactnavalunitsand between Xarardheere and the town of Eyl in the semi-autonomous Puntland region. othervesselswhenenteringthearea. n Area patrolled by international naval fleets: over 2.5 million nautical square miles of Othermeasuresincludeemploying sea (6.5 million sq km). There are now 25 warships from the European Union, securityofficersonboardandhavinga China, the United StatesTherewardspiratesreceivearerichina increasinglypreparedtotargetshipsup Pirate hubs and networks 24-hourstandingwatch.” and Japan patrolling this Gulf of Omancountrywheretherearenojobsand to600nauticalmilesfromthecountry’s Afterboardingthevessel,thepirates vast area, roughly one SAUDI ARABIAalmosthalfthepopulationneedsfood coastline,eveninskiffs,whichsuggests thensailthehijackedshiptoaSomali International response ship for every 100,000 OMANaidafter17yearsofnon-stopconflict.It thattheyarelaunchingoffshorefrom piratehubtown,likeEyl.Oncethere, Inresponsetotheincreasedfrequency square miles. Red Sea SUDANisestimatedthatpirateshavereceived “motherships”.Mostoftheseskiffsare piratesusuallytakethehostagesashore ofpirateattacks,severalnations—US$150minthepastyearinransom verysmall,whichmakesthemdifficult wheretheyarenormallywell-looked includingtheUnitedStates,theUnited ERITREA YEMEN Arabian Seapayments,andthattheyusesomeof todetectbyradar,andarealsodifficult afteruntilaransomispaid. Kingdom,otherEuropeanUnionthismoneytofundfutureoperations– todistinguishbysight–especiallywith PaulNewton,headofUKhulland memberstatesandothercountries— Gulf of Aden PUNTLANDmorepowerfulweapons,biggerand thesunreflectingoffthesurfaceofthe yachtunderwritingforAllianzGlobal haveincreasedtheirnavalpresencein ETHIOPIA SOMALIA Indian Oceanfasterboats,andmoresophisticated water–becausetheyareeitherblueor CorporateSpecialty,saysthatitisa theGulfofAden,whichvesselsmust Sources: The International Tankerequipment. whiteincolor.Also,mostoftheattacks mistaketounderestimatehow traversetogettotheSuezCanal.Butthe Owner Pollution Federation Limited Informationreleasedbythe takeplaceatnight. organizedthesepiratesare.Newtonhas logisticsareagainsteffectivenaval (ITOPF), Agence France-Presse (AFP),InternationalMaritimeBureau(IMB) beendirectlyinvolvedinsupporting intervention.Thetargetedareanow CNN, New York Times, ReutersalsosuggeststhatSomalipiratesare12 13
  • 8. Pirate Attacks Piracy: An ancient risk with modern faces Piracy: An ancient risk with modern faces Pirate Attacks humanity,aviolationoftheverynotion Violent intervention handexperienceinthearea. oforganizedsociety,andpiratesare TheUnitedStates,whilethreatening Circumstancesaresosensitivethat,for universallysubjecttoarrestand pirateswithcriminalprosecution,has example,younevernegotiatewith prosecution.Thatisintheory.Thefact alsostartedtomeettheproblemwith piratesdirectly.Instead,weturnto isthatthereisnoagreedinternational force.Whenonelargecargoshipwas specialistcontractors,peoplewhoknow legalsystemforarrestinganddetaining capturedinAprilandtheship’scaptain thepiratesandarefamiliarwith peopleaccusedofpiracy,noteven washeldforransom,USNavySEALs conflictscenarios. amongalliedcountriessuchasthe intervenedandshotdeadthreepirates. “Ifpiratesfeelthattheymaybe NATOstates.Countriescanonly However,thiskindofintervention killed,addsDierks,thewholescenario prosecutepiratesarrestedintheirown mayescalatethelevelsofviolence couldbecomealotmoredangerousfor jurisdictions.Ontopofthat,thereare alreadyseeninrecentpiracyattacksin crewsandcouldcreatemuchlarger veryfewmodernpiracylawsinplace. thearea,andcouldalsoleadtomore exposuresforinsurers”. Someoftodaysindustrializedcountries politically-motivatedattacks.Volker Dierksalsobelievesthatbigheadline findthemselvesreferringtolaws Dierks,Germanyheadofhull caseslikethecargoshipinAprilraise writteninthedaysofBlackbeard. underwritingatAllianzGlobal theissueofshippingcompaniesbuying Afewcountrieshavetriedtotake CorporateSpecialtysaysthat“priorto kidnapandransominsurancefortheirVolker Dierks, Head of Hull Underwriting mattersintotheirownhands,putting thisincident,mostpirateattackshad captainsandcrews:“Lastyearthere Frédéric Denefle, Head of Marine Claimsin Germany and a master mariner. Dierks piratesontrial,suchasinKenyaand beenrelativelypeaceful,eventhough were42casesofkidnapandransom. France. A well known figure in his market,has 27 years of experience in marine and France.Ontheotherhand,theBritish thepirateswerearmed.Crewswere Thismeansthatthefrequencyofsuch Denefle has had to work together withrecently has been involved in piracy cases ForeignOfficehasadviseditsnavynot heldhostagebutwerenotharmed,and attackshavebeenrelativelyrare. clients negotiating with pirates.off the coast of Somalia and Nigeria as an tocapturepiratesfromcertain thepiratessimplywaitedfortheir However,thatcouldnowchangeifunderwriter. countries,becausetheymayevenbe ransomdemandtobepaid.” piratesfearthattheycouldbecounter- abletoclaimasyluminBritainas Hostagesituationsareveryintense, attackedwithweaponsorarmed “refugees”fromwarzones. explainsFrédéricDenefle,Francehead forces.” ofMarineClaims.Deneflehashadfirst-Typical pirate skiff vs. average bulk carriertravelling round the Horn of Africa Typical bulk carrier - 160m0m 10m 20m 30m 40m 50m 60m 70m 80m 90m 100m 110m 120m 130m 140m 150m 160m Typical pirate boat - 8.5mPirate skiffs are extremely small comparedto their prizes. For this reason, pirates Naval ships from various countries now patrol thechecking a vessel for attack often go Gulf of Aden, but until now their effectiveness hasunnoticed or are mistaken for fishermen. been limited to a small area.14 15
  • 9. Risk Mitigation Piracy: An ancient risk with modern faces Piracy: An ancient risk with modern faces Risk Mitigation Defensive measures “Weaponswillonlyescalatethe Butforthoseshipsthatmustgothrough problem,”saysZibell.“Althoughthe Additional lookouts / Razor wire or bridge manning electric fence suchdangerousroutes,therearea piratesarearmed,attacksaregenerally Satellite tracking (including dummies) numberofstepstheymustbeableto notviolent,butthatsituationwould takeincaseofanattack.Thiscaneven certainlychangeiftheywerecounter- meanholdingpiratesatbayforacritical attackedwithweapons.Furthermore, fewminutesuntilmilitaryhelparrives. insurerswouldbeverywaryofinsuring Long-range acoustic device Thesestepsaregeneralrecommendations, anyvesselthatcarriedarmsorarmed whileindividualmeasuresdependon guardsonboard.Apotentialliability thesituationandspecificneedsofthe claimforshootingapirate–orcausinga System of nets shipandcrew.Firstly,theshipscrew crewmember’sdeath–couldbeveryCCTV / camera systems shouldbeprepared tospeeduptoevade costly,ascouldtheresultingdamageto High speed through at-risk areas attackersandusewaterhosestorepel thehull.” piratesattemptingtoscaletheirhulls. Therefore,Allianzworkswithclients Shipsshouldalsodoubletheirnight- anddiscussboththeirawarenessand Pressurised fire hose timewatch. theirpreparedness.“Iftheyhaveto Slippery Foam Therearealsoanumberof navigatethearea,wediscusswhat Captain Allan Breese, US-based Marine technologiesavailabletohinderpirate meansofprotectiontheycanemploy,” Loss Control Consultant. Captain Breese Boarding ladders stowed up on deck, not extended to ocean surface developed anti-piracy measures for his attacks.Forexample,someshipshave saysseniormarineunderwriterDanny Risk Mitigation deployedanoisemachinecalledalong- McCarthy. container ship as it transited the Straits of rangeacousticdevice,whichshootsa Inaddition,ofcourse,youdiscuss Malacca for more than eight years. He has painfulwallofsoundatitstarget.Others theirinsurancesolutions,explains been working in ship and port security useelectricfencesandbarbedwireto FrenchmarineclaimsheadFrédéric around the world for seven years and in makeitmoredifficultforpiratestotryto Denefle.Youneedtheright the insurance industry for four years. board.Therearealsosatellitetracking combinationofcoverage,including devices,suchasShipLOC,thatcanhelp consideringwarandkidnapransom pinpointaboat’spositionifradio cover.Atthesametime,thisinformation Pirates are opportunists. They attack ships they come across that happen to contactiscut.However,puttingfirearms needstobekeptveryconfidentialinthe aboardaship,eveninthehandsof samewayyoudontannouncetopirates fit the right profile. For this reason, it is especially important for shippers to trainedprofessionalsecurityservices,is whatkindoftreasureashipiscarrying. be aware of what kind of prize pirates in specific regions are after. To match usuallyasteptoofar. pirates’ tactics, boat crews need to be properly trained to employ certain defenses, although they are strongly cautioned not to use weapons. Inresponsetothegrowingnumberof CaptainAllanBreese,seniormarineloss tipofAfrica,whichcantakeuptothree piracyattacksoffthecoastofSomalia, controlconsultantatAllianzGlobal extraweeksandaddassociatedcosts. inFebruarythisyeartheInternational CorporateSpecialtywithmanyyears RalfZibell,marineriskconsultantat ChamberofCommerce(ICC) experienceatseaaswell,saysthat AllianzGlobalCorporateSpecialty, CommercialCrimeServices’unitissued “thereareplentyofsmallstepsthat frequentlyadvisesclientsaboutanti- itsguidancecalledBestManagement shipscantaketomakethemselvesless piracymeasures.Hesaysthatfrequent PracticestoDeterPiracyintheGulfof accessibletopirates,andallvessels communicationaboutpirateattacksin AdenandofftheCoastofSomalia.Its shouldconsiderusingsomeofthem. theirareasisalsovital.“Oneofthekey analysisofsuccessfulattacksindicates Themajorityofpirateattacksare faultsthatcompaniesmakeisthat thattherearefivecommon opportunistic,sothebetterprepared althoughtheymaybekeepingacheck vulnerabilitiesthatareexploitedby theship,captainandcrewaretodeal forreportsofpirateattacksintheareas pirates: withpiracyrisk,themorelikelytheywill wheretheirvesselsaresailing,they betoovercometheproblem.” oftenforgettopassontheinformation 1:Lowspeed Asaresult,themostbasicrisk totheircaptains.Itissuchasimple 2:Lowfreeboard managementtacticthatshipperscan oversight–butitcanbeaverycostly 3:Inadequateplanningandprocedures useisavoidingpiracyhotspots.Inthe one.” Information sources such as the 4:Visiblylowstateofalertand/or caseofshipsheadingthroughtheGulf International Marine Bureau and the evidentselfprotectivemeasures ofAdentotheSuezCanalandEurope, Lloyd’s Market Association provide one of 5:Whereaslowresponsebytheshipis thatmeanssailingaroundthesouthern the most important lines of defense. evident 16 17
  • 10. Conclusion Piracy: An ancient risk with modern faces Piracy: An ancient risk with modern faces Sources, Further Reading and Notes for Journalists Conclusion For further reading Sources “Arab leaders seek greater co-operation to tackle piracy”. TheInternationalCriminalCourt(ICC) (October,24,2008).MiddleEastEconomicDigest. The ICC website houses the sites for: ICC Commercial Crime Services “Captain Crooks”. Piracy is a trend that increases or decreases. Pirates do, (Decemer,1,2008).Newsweek. International Maritime Bureau IMB Piracy Reporting Center however, tend to concentrate in those marginal places “Fighting Pirates: The Pen and the Sword”. www.icc-ccs.org (Winter,2008-2009).WorldPolicyJournal. where commerce and lawlessness intersect, along shipping InternationalMaritimeOrganization “French Navy Seizes 11 Accused of Pirate Attacks off Somalia”. lanes in regions that are poor and weak. Prosperity and (April16,2009).TheNewYorkTimes. www.imo.org InternationalUnionofMarineInsurance strong local governments have meant, for example, that “I Know It Is Evil, but It Is A Solution”. www.iumi.com piracy has disappeared in places once famous for it such as (January,12,2009).Newsweek. LLoydsMarketAssociation “Insurers face huge claims as piracy spreads in Aden”. JointWarCommittee the Baltic Sea, the Mediterranean coast and the northern (April,14,2009).DailyMail,London. www.lmalloyds.com Caribbean. “Islamisten feiern Piraten als Gotteskrieger”. MaritimeSecurityCenter (April,13,2009).SpiegelOnline. www.mschoa.eu GoingbacktobeforetheMiddleAges,theGulfofAdenhasseenpiracyappearand “Latest Ship Seizures Broaden Counter-Piracy Challenge”. Skuld(Norwegianmarineinsurer) disappearastheregion’sfortuneshavefallenandrisen,oftensignificantlyaffecting (March,27,2009).FDCHRegulatoryIntelligenceDatabase. www.skuld.com traderoutes.Venicebecamewealthyinthe14thcenturybecausepiratesintheGulf “The lawless Horn”. blockedEurope’ssearoutetoAsiaandmadethelandroutethroughthecity-state (November,22,2008).Economist. Note for journalists profitable. Shouldyouhaveanyenquiries,please “Marine Insurance Buyers, Sellers Join To Thwart Modern-Day Pirate Threats”. Intoday’sworldofglobalshippinglinesandwidespreadinternationalnavalpower, feelfreetocontactus.Wearehappyto (October,27,2008).NationalUnderwriterPropertyCasualty. itishighlyunlikelythatlocalizedpirateactivitywillcausesuchdramatichistorical supplyadditionalinformationaswell “The Most Dangerous Place in The World”. asarrangeinterviewswithanyofthe shifts.However,modernpiratesareindeedimpactingthetransportindustry. (March-April,2009).ForeignPolicy. Internationalmilitarypatrols,longerroutestoavoiddangerousareasandchanging AllianzGlobalCorporateSpecialty insurancestructurestogetherwillraisethepriceofshippinginat-riskregions.For “The most dangerous seas in the world”. expertsquotedhere. (July,19,2008).Economist. thetimebeing,thiswillreducetheattractivenessoftheGulfofSuez,oneofthe busiestshippinglanesintheworld. “Nouvelles captures de navires”. Contacts AhandfulofnavalshipsarenowpatrollingahugeareaofseaintheAden/Somalia (April8,2009).RadioFranceInternationale(RFI). Hugo Kidston coastregion,anditisdoubtfulwhetherthecurrentmilitaryeffortintheGulfof “Obama Signals More Active Response to Piracy”. London Aden/SomaliaregionwillbeabletoreplicatethesuccessoftheMalaccaStraits.A (April,14,2009).TheNewYorkTimes. +44207877-3142 greaterinternationaleffortneedstobemadetostabilizeSomalia,disarmthearea “Piraterie: un navire belge pris en otage“. hugo.kidston@ma.allianz.com andprovidethepirateswithalternatives.Giventheirownconsiderablerisks,most (April,18,2009).AFP. piratesdonotchoosethatprofession.Theyarepoorfisherman,merchantsand Jacqueline Maher “Piracy causes lines to rethink”. soldierswhohavebecomedesperate. NewYork (Decemer,5,2008).TTGlive. +1212524-7844 Asaninsurer,Allianzbelievesinmanagingriskfromabroadperspectivefittedto “Some ships arm guards as pirate attacks rise”. jacqueline.maher@ffic.com clientsspecificneeds.Giventhegreatvarianceintheprofilesofourmarine (December.22.2008).BusinessInsurance customers,weplacegreatervalueonclientdialogueaboutrisk,riskmitigationand “This Cabbie Hunts Pirates”. Richard Manson thewordingofourpoliciesthanonacross-the-boardratechangesinat-riskareas. Munich (January,19,2008).Macleans’. Ultimately,risksneedtobetreatedattheirroots.ThatiswhyAllianzpromotesthe +49893800-5509 “Yemen: The Next Pirate Paradise?”. sharingoffindingsandrecommendationswithclientsbutalsowithgovernments richard.manson@allianz.com (January,5,2009).EmergingMarketsOnline. andthemedia.Ourgoalistoboostawarenessofthecausesofrisksandpromoteany solutionsthatmaybeavailable.Thisstudyisapartofthatprocess.Onlybyworking www.agcs.allianz.com togethercanwesolveglobalchallengeslikepiracy. Acknowledgements We would like to thank all the Allianz Global Corporate Specialty experts for their time and valuable input. Special thanks also go to Neil Hodge who made a major contribution to the content of this study. Disclaimer Copyright Copyright © 2009 Allianz Global Corporate Specialty AG. All rights reserved. The material contained in this publication is designed to provide general information only. While every effort has been made to ensure that the information provided is accurate, this information is provided without any representation or warranty of any kind about its accuracy and Allianz Global Corporate Specialty cannot be held responsible for any mistakes or omissions. Allianz Global Corporate Specialty consists of various legal companies operating under the Allianz Global Corporate Specialty brand, namely Allianz Global Corporate Specialty AG, Allianz Global Corporate Specialty (France) , Allianz Global Corporate Specialty North America (legal name Allianz Global Risks US Insurance Company ) and AGCS Marine Insurance Company. Allianz Global Corporate Specialty, Fritz-Schaeffer-Strasse 9, 81737 Munich, Germany18 19
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