The insurance industry has said that any call for it to boost legal commercial activities in Somalia and attract local investors is unrealistic.
Speaking at an Insurance Institute of London lecture, the International Maritime Bureau’s Piracy Reporting Centre director Pottengal Mukundan said the insurance industry could help to stimulate legitimate commerce in the war-torn and famished country.
He said an insurance product could work like export guarantee schemes to encourage people to go there and invest.
“The mood is right in Somalia to provide proper commercial activities for the villages to break the cycle of dependency on piracy for income,” Capt Mukundan said.
He added that insurers could also help combat piracy by setting high operating requirements for shipowners’ insurance contracts.
However, London Market Association underwriting senior executive Neil Roberts said an export guarantee scheme would not work and it was unlikely any underwriter would want to get involved without any security.
He added that Capt Mukundan’s second point was really an issue for shipowners.
“Best Management Practice 4 is guidance, not an underwriting document. It is very difficult to mandate any of it. Underwriters are not on board the ships so can’t enforce it,” he said.
A London market underwriter said expecting insurers to expose their balance sheets to Somalia was “pie in the sky”.
“My view is that this is an international issue and has to be addressed by the UN or other Muslim countries, some wealthy, that are near by.”
One war risk broker said the gross domestic product of Somalia is so small that it in effect has little to no cross-border trade and therefore he was unsure what any export guarantee scheme would actually be protecting.
“Moreover, the availability of such a product is unlikely to encourage investors,” he said.
“The biggest barriers to investment are political risk, lawlessness and a lack of any semblance of civilised society. These other big issues need fixing before we start looking at export credit protection.”