By Nefeli Agkyridou, NBC News
LONDON – As brazen attacks by Somali pirates continue to attract headlines, modern-day Jack Sparrows aren’t the only ones who see plundering ships as a lucrative business.
Kidnap and ransom insurance is now a booming industry with shipping firms paying tens of thousands of dollars per journey to ensure that their vessels, cargos and crews return home safely.
The average ransom for a seized ship doubled from $1 million in 2008 to more than $2 million last year and has continued to increase in recent months, industry experts say.
Pirates of the 21st century quickly realised that insurance companies entering their “business” made it easier for ransoms to be obtained. This also gave the well-armed raiders the opportunity to ask for more cash, creating a cycle that is hard to break, according to Pottengal Mukundan, the director of the International Maritime Bureau.
And while shipping firms and insurance companies know they might be encouraging piracy in the long-term by paying huge ransoms, there is a pressing short-term need to free seized crew members, says Professor Roger Middleton, a consultant researcher on the Africa program at London-based think tank Chatham House.
But even though ransoms are rising, insurance premiums are going down. “Growing numbers of insurers are trying to enter the piracy market which increased competition initially and drove down premiums,” said William Miller, divisional director of Willis Group Holdings’ kidnap & ransom unit.
Premiums for a single high-risk journey typically range from $15,000 to $30,000 depending on the sum insured. However, the speed and size of a vessel also comes into play. Insurers also offer discounts of up to 15 percent for ships featuring on-board anti-piracy measures such as razor wire.
“The number of annual transits through high-risk areas like the Gulf of Aden compared to the number of vessels seized implies that the overwhelming majority of ships complete their journey incident-free,” Miller added. “Nevertheless, pirates do make successful hits from time to time -- hitting insurers with claims.”
Experts expect attacks to increase this month as the monsoon season ends and it would appear there is much more money to be made by both pirates and insurers.