Pirate Attacks Boosting Insurance Costs

NEW ORLEANS -- The surge in piracy in the Gulf of Aden and Indian Ocean is causing ocean carriers, cargo interests and insurers to take a fresh look at their insurance coverage, a marine insurance executive said at the Journal of Commerce's annual Breakbulk Transportation Conference.

"They're seeing things they never saw before," said Shawn Kucharski, vice president at Willis Marine. Kucharski was a panelist in a discussion on risk management Thursday at The Journal of Commerce's Breakbulk Transportation Conference in New Orleans.

Carriers face soaring costs for insurance as underwriters have expanded war-risk areas to cover 300 to 400 nautical miles from coasts of pirate-infested shores. Underwriters also have sharply increased "breach rates" -- insurance premiums paid for sailing into war-risk areas where pirates have been active.

Some carriers are paying the higher costs -- which Kucharski said can jump more than tenfold after pirate attacks in the areas -- but others are avoiding risky areas by such tactics as rerouting ships around the Cape of Good Hope.

Kucharski said carriers' hull and machinery policies typically cover piracy. These policies’ terms permit the declaration of general average -- in which all parties share in a vessel's losses. Kucharski said these terms are being applied to cover costs of ransoms, ship damage, towage, repairs and cargo losses.

He said that as losses started to rise, companies began reading their policies' terms to see what was covered. "They found that the wording was already there. It was just that no one had had to apply it in a long, long time."

Contact Joseph Bonney at jbonney@joc.com.