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The increased risk of piracy presenting new challenges for marine insurance market

Chmielewska, Dorota LU (2011) JASM01 20111
Department of Law
Abstract
The recent events of piracy, especially in the Gulf of Aden raised the concerns of the international community, shipping businesses as well as the marine insurance industries. The drastic increase in piratical incidents and the costs associated with them started a discussion as to the piracy coverage under modern marine insurance policies. Piracy has oscillated through history between being treated as marine peril and war risks peril. The confusion as to the right placement of the peril of piracy is still noticeable, as various insurance markets have adopted different approaches. In London, until 2005 piracy was insured under ordinary hull coverage. However, the persistent nature of the piratical attacks has induced the London underwriters... (More)
The recent events of piracy, especially in the Gulf of Aden raised the concerns of the international community, shipping businesses as well as the marine insurance industries. The drastic increase in piratical incidents and the costs associated with them started a discussion as to the piracy coverage under modern marine insurance policies. Piracy has oscillated through history between being treated as marine peril and war risks peril. The confusion as to the right placement of the peril of piracy is still noticeable, as various insurance markets have adopted different approaches. In London, until 2005 piracy was insured under ordinary hull coverage. However, the persistent nature of the piratical attacks has induced the London underwriters to start transferring it to the war risks policies. In the US, piracy has been treated as a war risk peril and considering the recent events, it is likely to remain as such. In addition, Somali pirates have introduced a new form of piracy, as their new target is the payment of ransom, demanded in exchange for the vessel, or even recently only for the kidnapped crew members. Therefore, the marine insurance markets must have accommodated such claims very quickly. It remains uncertain whether the ransom payments are covered by the ordinary hull or war risks policies. However, the insurance markets have introduced new products, in order to meet the needs of owners of vessels transiting through the dangerous areas. The policy that insures the shipowner against the ransom payment, as well as the other costs associated with the piratical seizure is K&R policy. Furthermore, recently a new loss of hire/earnings due to piracy cover has been offered in order to protect shipowners, charterers and cargo owners against the losses resulting from ship detention that can last for several months. In addition, the attacks of Somali pirates became very violent and often result in the injury or even death of crewmembers. Therefore, the P&I Clubs are also facing the challenge posed to them by Somali pirates. Furthermore, the discussion has been initiated as to the possible P&I Clubs contribution to the ransom payments. In relation to the cargo insurance, the London cargo insurance market still insures the piracy under the ordinary cargo clauses. Contrary, to the US, where the cargo underwriters have followed the approach of hull insurers and cover piracy under the war risks policies. Considering the increasing number of piratical attacks and the new challenges that the marine insurance markets face nowadays, it might be expected that the London cargo insurance market will also remove piracy from the standard cargo clauses. This paper examines the various marine insurance policies offered by London and American markets in order to verify how the risk of piracy can be insured. (Less)
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author
Chmielewska, Dorota LU
supervisor
organization
course
JASM01 20111
year
type
H2 - Master's Degree (Two Years)
subject
keywords
ransom, marine insurance, piracy
language
English
id
1966487
date added to LUP
2011-06-08 13:46:21
date last changed
2011-06-08 13:46:21
@misc{1966487,
  abstract     = {The recent events of piracy, especially in the Gulf of Aden raised the concerns of the international community, shipping businesses as well as the marine insurance industries. The drastic increase in piratical incidents and the costs associated with them started a discussion as to the piracy coverage under modern marine insurance policies. Piracy has oscillated through history between being treated as marine peril and war risks peril. The confusion as to the right placement of the peril of piracy is still noticeable, as various insurance markets have adopted different approaches. In London, until 2005 piracy was insured under ordinary hull coverage. However, the persistent nature of the piratical attacks has induced the London underwriters to start transferring it to the war risks policies. In the US, piracy has been treated as a war risk peril and considering the recent events, it is likely to remain as such. In addition, Somali pirates have introduced a new form of piracy, as their new target is the payment of ransom, demanded in exchange for the vessel, or even recently only for the kidnapped crew members. Therefore, the marine insurance markets must have accommodated such claims very quickly. It remains uncertain whether the ransom payments are covered by the ordinary hull or war risks policies. However, the insurance markets have introduced new products, in order to meet the needs of owners of vessels transiting through the dangerous areas. The policy that insures the shipowner against the ransom payment, as well as the other costs associated with the piratical seizure is K&R policy. Furthermore, recently a new loss of hire/earnings due to piracy cover has been offered in order to protect shipowners, charterers and cargo owners against the losses resulting from ship detention that can last for several months. In addition, the attacks of Somali pirates became very violent and often result in the injury or even death of crewmembers. Therefore, the P&I Clubs are also facing the challenge posed to them by Somali pirates. Furthermore, the discussion has been initiated as to the possible P&I Clubs contribution to the ransom payments. In relation to the cargo insurance, the London cargo insurance market still insures the piracy under the ordinary cargo clauses. Contrary, to the US, where the cargo underwriters have followed the approach of hull insurers and cover piracy under the war risks policies. Considering the increasing number of piratical attacks and the new challenges that the marine insurance markets face nowadays, it might be expected that the London cargo insurance market will also remove piracy from the standard cargo clauses. This paper examines the various marine insurance policies offered by London and American markets in order to verify how the risk of piracy can be insured.},
  author       = {Chmielewska, Dorota},
  keyword      = {ransom,marine insurance,piracy},
  language     = {eng},
  note         = {Student Paper},
  title        = {The increased risk of piracy presenting new challenges for marine insurance market},
  year         = {2011},
}