Shipping companies: Don’t overlook these critical covers for marine piracy
Shipping companies trading in high risk marine piracy areas, either permanently or periodically should consider marine kidnap & ransom (K&R) insurance.
K&R insurance can provide valuable business protection, alongside other physical security measures in place.
Traditional K&R policies will protect a company’s balance sheet by reimbursing any ransom that has to be paid for the return of crew and/or vessel, and they often provide immediate access to experienced crisis response consultants, like EOS, that are well-versed in handling piracy incidents in the region. But marine K&R insurance can also provide a number of other valuable protections for exposures that arise during and as a result of a piracy incident that can be overlooked during the insurance buying process.
Here are a few critical coverage areas shipping companies should consider as part of their marine K&R insurance:
- Seizure as an insured event This year we saw a re-emergence of ‘petro piracy’, where pirates take control of a vessel with the sole purpose of stealing the refined oil cargo on board rather than demanding ransom for the crew or ship itself. Some K&R policies are only triggered by kidnap and the subsequent demand for ransom, leaving a business exposed in the event of a petro piracy style takeover. Look for a policy with seizure as an insured event, which will trigger when the vessel is illegally boarded or possessed, not just when ransom is required.
- Loss of ransom in transit Delivering a ransom to kidnappers is a complex operation. Even with an experienced team performing the transfer, from the time the money is withdrawn to the moment it is handed over to the pirate group, there are many perils that can result in that cash being lost, stolen, damaged or confiscated. A comprehensive marine K&R policy will provide for a replacement ransom should this happen.
- Additional expenses incurred If your crew is kidnapped or your vessel hijacked, the ransom demand will not be your only financial loss. There are a multitude of costs associated with a piracy incident, ranging from the wasted salaries of the kidnapped crew and the fuel cost wasted during a seizure, to port authority costs incurred when docking at an unscheduled port or even the cost of arranging the ransom delivery. Medical or psychiatric treatment fees, as well as rest and rehabilitation expenses for the kidnap victims can also be covered as part of a marine K&R policy under additional expenses.
- Legal liability One of the most often overlooked exposures of a kidnapping incident is the legal liability the company has to protect its employees from such an event. Legal liability cover protects a company against any costs it becomes legally obliged to pay as a result of a lawsuit brought by a kidnap victim or their family. The most high profile example of this was in 2009 when crew members from the Maersk Alabama sued the shipping company and the master of the vessel, alleging that both parties ignored warnings about Somalian pirates and failed to mitigate sufficiently against the risk while transiting the Indian Ocean.
- Loss of hire Shipping companies should also remember that loss of hire cover, which reimburses the company for any loss of hire income incurred during a piracy incident, can often be purchased in conjunction with a marine K&R policy.
CFC protects businesses across a variety of industries against traditional K&R risks, as well as emerging risks like cyber extortion. We also specialize in marine piracy insurance and protect more than 60 fleets and some of the largest shipping companies in the world with both single transit and long-term policies. Our policyholders have access to a range of expert consultants and a global, 24/7 crisis response team. Find out more about our K&R product here.
This is an excerpt from an EOS WAF circular.