After gaining widespread attention in 2008, piracy still remains an issue for ship owners and those shipping cargo through the Gulf of Aden and across the Indian Ocean. While the world has responded with increased naval presence in the region, pirates have adapted by expanding the area in which they seize ships.

Attacks in the latter half of 2009 occurred in a wider vicinity, ranging from 1,000 miles off the Somali coast, down to the northern tip of Madagascar—an area that is much more difficult to police. These new challenges may seem daunting, but as Clive Stoddart from Aon's Crisis Management team tells us, there are options for ship owners and businesses that must enter areas of risk.

"We predicted a seasonal rise in piracy at the end of September 2009," Stoddart says. "Seas become calmer after the monsoon season, which affects the pirates' ability to attack and seize vessels."

Responding to Piracy with Insurance Solutions

By mid-January, 21 vessels had been seized since October 2009—with eight being released during that time. With attacks still prevalent, the marine war market responded by expanding the area within which it requires additional premium for voyages through the Gulf of Aden and Indian Ocean. The kidnap and ransom (K&R) insurance market has reacted by encouraging ship owners to consider all-encompassing marine K&R policies. Increased competition and greater choice in the marketplace has helped lower prices for businesses that choose to purchase such policies either on an annual or one-time basis—better news for marine businesses operating in a recessionary environment.

Ship owners have also focused on preventive measures such as armed and unarmed guards. Aon has recently employed a specialist team with experience in putting unarmed personnel onboard vessels. Because many attacks could be repelled with better preparation, NYA, a leading kidnap and extortion consultant, works with clients to consider a broad spectrum of risk management and mitigation. And in the event of a successful attack, NYA's expertise is put into play to solve the incident.

To help clients sort through the risk insurance options, Stoddart and his team provide information on the total cost of a piracy incident: "It is much more than simply paying ransom. Depending on the time it takes to recover a vessel, it's possible for the total cost of an incident to be more than double the ransom." Consultant and legal fees, loss of hire, crews' salaries, bunkers and the potential for litigation from families all contribute toward the final bill. Finally, the cost to deliver ransom is significant.

So while there is currently no foreseeable end to piracy in the Indian Ocean, there are risk insurance options for businesses with ships or cargo traveling in the region.