By GRAHAM BUCK, who covers European risk management issues
Hollywood may briefly have lent a touch of glamour to the notion of modern-day piracy on the high seas. The reality is less romantic, as has been proved since the escalation of attacks on vessels in the Indian Ocean and Gulf of Aden since late 2007.
The first attack to make headlines was in November 2008, when Saudi supertanker Sirius Star and its cargo of crude valued at around $100 million was seized by pirates from Somalia.
The country, situated in the most easterly region of Africa, has endured two decades of civil war. The collapse of its political system has left the unprotected coastal waters vulnerable to illegal fishing by vessels from Asia and Europe, which have reportedly also used the region as a dump for nuclear and toxic waste. Somalians turned to piracy because they could no longer feed their children, said Sean Woollerson, a London-based partner of insurance broker Jardine Lloyd Thompson.
Nearly two years on from the Sirius Star incident, the problem of piracy is extending to an even greater area of the seas. Hijacking attempts have become more frequent; Woollerson reports that a total of 31 vessels and 680 crew are currently held at gunpoint. However, none of the numerous incidents since late 2007 involved American citizens until the shooting of Jean and Scott Adam, Phyllis Macay and Bob Riggle on February 21 after the Adams' yacht was hijacked.
The deaths came weeks after South Korea sent in forces to rescue 21 crew on a hijacked freighter and killed all eight pirates, a tough response that President Lee Myung-bak said would demonstrate that behavior threatening the lives and safety of his people would not be tolerated. Others warned that an aggressive military response might merely provoke the pirates to injure or kill their captives more readily.
Another trend, said Woollerson, is the possibility that ransom payments collected by the Somali pirates--which have ranged from $500,000 to as much as $8 million--might now be reaching the terrorist group Al Shabaab, an organization with links to al Qaeda, which is working against Somalia's government.
"Ransom payments have been permitted as they are regarded as being in the public interest," he said. "That won't be the case if a link is definitely established between the pirates and terrorists, in which case they'll be outlawed."
The attack on the Sirius Star, for instance, paid off handsomely for the pirates; after a lengthy standoff, the vessel was released in January 2009, reportedly for payment of a $3 million ransom.
Woollerson is working on an approach to the problem. Despite attempts at a U.S.-led international solution, he said, there has been a lack of political will from some countries affected by piracy. However, the shipping industry, which has been paying enhanced premiums, has lent its support to a wartime-style convoy escort program based on the premise that safety in numbers can reduce the risk.
Neil Smith, head of underwriting at the Lloyd's Market Association, has just returned from addressing NATO officers at the second annual anti-piracy workshop in Germany--an event whose attendees ranged from insurance industry representatives to legal advisers.
"I had some idea of how difficult patrolling the area was, but didn't realize quite how bad it was," he said. "Naval forces are doing a great job, but have to cover a huge area--and the pirates are responding by expanding their activities ever wider."
He added that the event allowed him to explain what the insurance industry can (and can't) do to address the problem, as well as dispelling the myth that it will go away if ransoms are withheld.
"Unfortunately, the situation will persist for as long as there is no government control in Somalia," he said.
February 28, 2011
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