Underwriting costs escalate as piracy attacks soar 30%

Piracy increased by 30% within the first six months of this year and is costing the insurance industry millions of pounds, experts have revealed.

Speaking at a joint Lloyd’s and Nato conference entitled ‘Managing risk in the 21st century’, Talbot Underwriting chief executive Rupert Atkin said the frequency and size of piracy-related claims was proliferating.

“The statistics tell a story. In the first quarter of this year there were 104 attacks, and in the second quarter there were 136, which is an increase of nearly 30%,” he explained.

Nato secretary general Anders Fogh Rasmussen said: “The EU and many governments have had to send navies to try to defend against attacks. And it has cost insurance companies – many of which are part of the Lloyd’s market – millions.”

Atkin said the problem was acute off the coast of Somalia and in the Gulf of Aden, between Somalia and Yemen, where piracy had generated $90m for Somalia’s economy. He added that the cost of ransoms has doubled over the past year.

“The costs to underwriters are escalating. The average ransom last year was $1m-$2m and that has gone up to between $2m and $3m,” he said.

Atkin criticised the lack of international legal frameworks in place to deal with the problem, pointing out that many countries simply handed back apprehended pirates to their country of origin to avoid the costs of prosecution.

Speakers at the conference also tackled the continued threats of climate change and cyber-terrorism.

The leader of Catlin’s Arctic Survey, Pen Hadrow, said that Arctic sea ice may cease to be a constant planetary feature within our lifetimes, creating both opportunities and threats for business.

It could open up new shipping lanes, fishing grounds and provide access to the region’s oil and gas resources, but would also have negative implications for global warming, he said.

Elsewhere, Rasmussen said greater action was needed in the fight against cyber-terrorism.

“Government and private companies launch cyber-attacks. Governments and industry suffer the consequences, in terms of lost revenue, lost data and lost services. And it will take co-operation between the public and private sectors to build real defences,” he said.

Lloyd’s chairman Lord Levene called for greater collaboration between governments and business to help the insurance industry manage future risks.

“Lloyd’s alone can’t bring the rule of law to Somalia. We can’t cut global emissions,” he said. “But these things are not beyond the limits of collective action.”