Expert Risk Articles

Piracy: "The Risk is Still Out There"

Reports about pirate attacks in the Indian Ocean continue without letup. At the same time, calls are mounting to finally put an end to the problem. Increased military presence is one of many ideas being discussed. That by itself would not solve things, says Dr. Sven Gerhard, responsible for insuring ships worldwide at Allianz Global Corporate & Specialty. In an interview he talks about the latest developments and debates around piracy.

Dr. Gerhard, how has the situation with pirate attacks developed in 2012?

Dr. Sven Gerhard: Worldwide it's practically unchanged from last year. For some years now, we've been seeing a consistently high level of attacks and hostages taken – especially off the coast of Somalia. Pirates there are currently holding around 200 seamen hostage. About half of them were taken this year alone. That said, among our customers this trend is declining, which of course we're very happy about. But the risk is still out there. (See an Allianz study on Piracy Risk)

More and more people are demanding armed security on board ships in at-risk areas to fight off pirates. What do you think?

Gerhard: First of all, it's important to understand what's actually driving that discussion. Ship owners want to expand their defensive capabilities against pirate attacks. In addition to purely passive security measures, active ways to fend off pirates are getting a lot more attention. Governments in many countries are passing new anti-piracy legislation intended to clarify the scope of action for ship operators and crews. That, then, can also include carrying armed security personnel in international waters.

So what is your position on armed security on board?

Gerhard: We also want legal clarity, of course, and binding guidelines for what's allowed and what isn't. A lot is still unclear. But we do not unconditionally advocate armed security personnel on board. Security forces can be effective, but only if they are well trained and the ship's crew are also involved in the security concept. Crewmembers need to know how to interact with the security personnel and what will happen in an emergency. Otherwise, a bad situation could rapidly escalate. There is always an increased risk when weapons are involved.


Piracy protection

What does Allianz want to see in connection to this?

Gerhard: As insurers, we are interested in the overall concept of the ship operators. Are the crew well trained? Are they well coordinated and ready for this kind of situation? What criteria are used to select armed security forces, how are they integrated into the on-board safety plan? Who monitors that? What is the relationship to, say, the navy on the scene? What other security measures are there? Single elements are not enough. You need a coherent overall concept. Our clients see that similarly.

The German government recently authorized military air operations within 2 km of the Somali mainland to fight pirates there...

Gerhard: That's one of many military measures that some governments are turning to in order to clarify and expand their own scope of action. In some cases, that's probably necessary, but it doesn't solve the basic problem: grinding poverty in a practically ungovernable country. For years we have been calling for a coordinated international political and economic effort to deal with the source of the misery.

Because the region at risk now includes nearly the entire Indian Ocean which the militaries cannot hope to cover?

Gerhard: Not only that. There's now another development: In West Africa as well the situation has been getting worse since 2009 – especially off the coast of Benin and Nigeria. Here we are also seeing increased pirate activity. You can't watch over all the seas at once.

Nigeria and Benin? Do pirates there also take hostages for ransom like the Somali pirates do?

Gerhard: In West Africa - like "traditional" pirates - they are after booty, captured cargo. Or they demand ransom for the cargo like the oil in a tanker. But Somali pirates are also a danger to cargo. The goods are not considered lost, so usually there is no insured loss, unless they spoil while the ship is being held by the pirates. Nonetheless, the cargo does not arrive or arrives with a delay, so there is a business loss, especially with time-sensitive deliveries like parts for a construction project.

Is the situation in West Africa different from in the Indian Ocean?

Gerhard: These countries have similar problems to Somalia: poverty alongside political instability. At least both Benin and Nigeria have more-or-less stable national structures. That's all the more reason to pursue political and economic rather than military options. So, here as well I would advocate solutions that treat the actual cause. Piracy is only a symptom.