Against a background of increasing pirate attacks off the coast of Somalia involving kidnapping and shoot-outs, Lloyd’s underwriters are behind a new kind of marine insurance policy aimed at covering a gap in standard cover.
The policy, designed by Lloyd’s broker Aon, covers the loss of earnings incurred by charterers, shipowners and cargo owners when a ship is being detained by pirates.
There were more than 50 reported attacks off the coast of Somalia in the first eight months of 2008, with 32 vessels hijacked.
Costs incurred
The average duration of vessel seizure is 60 days, which means that charterers have been incurring the cost of paying charter hire for these additional days without receiving any extra income. Cargo owners also face the risk of cancellation of contracts due to the delay.
Hull and war clauses do cover physical loss or damage arising from piracy, while ransom is either dealt with by specific coverage or by owners attempting to recover as a ‘sue and labour’ expense.
But until now there has been a potential void in cover for the financial impact of business interruption or loss of earnings.
“We decided to do something about it across the marine industry so all parties affected by an attack could recover their loss of earnings,” Peter Townsend, Aon’s Head of Marine Hull, said.
Complementary policy
The new standalone loss of earnings policy, which complements existing hull, war, cargo and P&I insurance, is designed to cover:
• Charterers, who are paying for hiring the vessel even though the vessel is detained
• Shipowners, who in the event of contract frustration, may lose out on charter revenues
• Cargo owners, particularly of seasonal goods, who face cancelled contracts if the goods are held up
• All other interested parties to a venture with an insurable interest.
Risking the route
There are over 22,000 transits through the Gulf of Aden every year. But, as Mr Townsend points out, without piracy insurance shipowners and charterers risk incurring significant costs with no recourse.
“The only alternative shipowners and charterers have is to avoid the Gulf of Aden and transit around the Cape,” he says. “The additional cost of that 10-12 day detour with extra fuel and wages can be as much as $2m.”
Importantly, Aon’s cover is triggered from day one of the attack with nil deductible. The insurance is available worldwide, to cover other piracy hotspots, and is written on a voyage basis.
Potential to hinder trade flows
Piracy has become a serious problem off East Africa, potentially hindering international trade flows.
The European Council is so concerned it recently launched its first ever maritime military initiative, Operation Atalanta, to help improve security off the Somali coast.
More than a dozen ships are currently being held to ransom in the region, including the Saudi-owned supertanker Sirius Star, which has two British crew on board.
In November, two British security guards jumped overboard from a chemical tanker seized by Somali pirates in the Gulf of Aden. The men, along with another crew member, were picked up from the sea by a German naval helicopter.
