Posted on 11 Feb 2011
A senior executive at reinsurer Munich Re warned that installing sharpshooters on oil tankers to fight off pirates as some shippers have suggested risks provoking more aggressive attacks.
Shipping firms are debating adding snipers and other armed teams costing up to $6,000 a day to defend vessels against pirate attacks that are growing in range and audacity, said Dieter Berg, head of the marine division of the world's biggest reinsurer and marine reinsurer.
"This raises the danger of escalation," Berg told Reuters in an interview. "Pirates are often themselves former security forces and will adapt to the threat. At some point they'll shoot back."
Shipping companies are desperate to counter an escalating pirate threat to merchant vessels and oil tankers in the Arabian Sea and Indian Ocean.
The economic cost of piracy has been estimated at $7 billion to $12 billion per year, with shippers facing rising insurance costs that threaten to boost commodity prices.
Munich Re's premiums in the transport segment total around 1 billion euros ($1.4 billion), of which only a fraction is piracy-related.
Brokers estimate sales of marine kidnap & ransom policies have risen to about $125 million a year since 2008, when the products were first developed
in response to an upsurge in vessel seizures and ransom demands off the cost of Somalia.
"Damage claims have been rising faster than premiums can be adjusted up to now," Berg said, warning that losses could be much greater and might involve damage to the environment in the event of a sinking.
"We don't know how it will develop but the trend is toward an increasing number of pirate attacks," he said.
Pirates operating some 1,000 miles off the coast of Somalia on Wednesday hijacked a tanker carrying oil worth about $200 million, haunting waters previously considered safe.
With 40 naval warships now patrolling the Gulf of Aden and waters off East Africa, pirates are shifting their attention further afield, including towards the Strait of Hormuz, through which pass around 40 percent of the world's oil shipments by sea.
"These are worthwhile targets for the pirates, who are feeling their way forward," Berg said
Ransom payments have shot up over the last five years and now average around $4.5 million TO $5 million per ship, from around $150,000 to $300,000 previously, Berg said.
"We've also seen mishandling and torture of crews, which is an extreme escalation," Berg said, adding that hostages now spend an average of four months in captivity, a month longer than before.
Last year, pirates captured 52 ships, of which 49 were off the coast of Somalia. There were a total of 445 pirate attacks, in which nearly 1,200 hostages were taken.
Pirates are holding 31 ships and more than 700 crew members hostage.