Insurers Offer Discounts For Armed Guards

A number of kidnap and ransom insurers are demanding the presence of armed guards on vessels transiting the Gulf of Aden and the Indian Ocean before they will provide cover, and others are offering discounts of up to 35% to shipowners employing private security firms for voyages in high-risk areas.

For an average vessel valued at $20m, the starting price for a policy is in the region of $35,000 for a seven-day transit of the Gulf of Aden. With armed guards on board and a K&R policy in place, a discount of 35% would represent a saving of $12,250.

While no insurer was prepared to confirm they were offering such discounts or requiring the use of armed guards when underwriting policies, some told Lloyd’s List they offered some form of discount on the war rate for vessels transiting pirate hotspots.

Reductions in premiums are made for the use of private security, as well as for vessels that have a K&R policy and those that have implemented Best Management Practice 3 or 4.

When asked if he was aware of underwriters offering discounts for armed guards, Lloyd’s Market Association senior executive Neil Roberts said: “I’m sure it’s true, but this is very firmly an area that is entirely down to the risk assessment of the individual underwriters. In short, it’s a market and some underwriters will give discounts and some will not.

“If you talked to X or Y underwriter they would be passionate on their approach as polarised views are strongly held.”

Watkins Syndicate underwriter Emma Russell said discounts for the use of armed guards were considered in the London market, and that this consideration would vary from underwriter to underwriter, and would be subject to the level of information given.

Individual insurers may be reluctant to confirm the offering of such discounts, or indeed any formal requirement for the employment of private security firms, as it is a contentious issue for flag and coastal states.

Several states, including France, Greece and Japan, prohibit the use of armed guards on board vessels. This would have legal and liability implications if a vessel was to come under attack in waters where the coastal state did not authorise the use of armed guards or if the practice was not permitted by its flag state.

This would become particularly evident if the attack resulted in any casualties. As yet, no vessel with armed guards on board has been successfully hijacked.

International Shipping Federation secretary-general Peter Hinchcliffe said that while he understood why the use of armed guards would mitigate risk for underwriters, he regretted that the situation had got to this stage.

“The industry is being squeezed and the international response to piracy isn’t working. It is the obligation of flag states to preserve safety on the high seas and the use of armed guards cannot become institutionalised,” he said.

“We cannot afford to go down the path where the use of armed guards becomes part and parcel of dealing with piracy. This can only be a temporary measure.”

Mr Hinchcliffe said he was “vehemently against” making armed guards a requirement in a policy. “Beyond anything else it would rely on the presumption that there are actually enough security firms to cope with this,” he said.

One prominent private sector security provider said that it was up to insurance providers to determine their pricing arrangements, but that providing a discount to those ready to use a service that is a proven deterrent seemed logical.

“If insurance companies are offering more competitive rates to certain shipowners for using private security providers, this would be a welcome inducement,” he added.

The Security Association for the Maritime Industry currently has 70 members. This number has risen from the 58 members SAMI founder Peter Cook announced at the International Union of Marine Insurance in September.

The International Maritime Organization issued guidelines in May (revised in September), which state that shipowners must follow flag state jurisdiction and any laws and regulations imposed by the flag state concerning the use of private security companies. It noted that port and coastal states’ laws might also apply to such vessels.

The guidance makes clear that the use of armed guards should not be considered as an alternative to BMP and that effective self-protection is the key to avoiding, evading and deterring pirate attacks.

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