Piracy - Shipping moves onto war footing after pirate attacks

Many shipping companies are already taking action to avoid the Gulf of Aden as Somali pirates cause havoc.

The pirates have reportedly demanded a £17m ransom for the return of the Saudi's oil supertanker and crew.

One of the main problems for governments is that, in international waters, you have to balance the freedom of the seas against the security of world trade; only if fired upon can they respond with force.

In insurance over the last few years, piracy has been moved out of the marine perils at sea in marine hull policies to war policies. War policies are standard for all vessels to avoid risks such as unexploded mines in the Mediterranean. There are a number of high-risk areas where clients must notify the underwriters via the broker if they are travelling through because there will be increased premiums.

Neil Roberts, secretary of the Joint War Committee at the Lloyd's Market Association, remarked: "Piracy has traditionally been a marine hull peril but, with changing times and methods, it is more appropriate to be grouped in the war policy to bring clarity to who is paying the claim. This is happening gradually. Piracy is a grey area but all vessels with loans will have a war policy; there is always a background risk such as an unexploded device. We are aware that brokers and underwriters are agreeing that the war and hull policy should be negotiated in tandem."

Peter Townsend, head of marine hull at Aon, has warned that piracy can fall through the policy gaps and that the latest attacks - storming boats using rocket grenades and then demanding a ransom - had brought a new dynamic to piracy, whereas before, boats were boarded and then robbed.

Since 1983, in the hull wordings, the standard policy is for physical loss with an extra policy to insure loss recovery. Ransoms are not covered technically in war or hull wordings. If a ransom needs to be paid, some owners could look to recover it by declaring general average because it was for the common good, or it could potentially be recouped under sue and labour. There is a combined kidnap and ransom product available that could be developed to cover such risks.

Meanwhile, many boats are now receiving military escorts and Germany is advocating sending troops to the Gulf of Aden, meaning that perhaps the seas will become safer soon.

CENTRAL BUYS PEART

Scottish broker Central Insurance has acquired high performance specialist Peart Insurance Brokers in a £1.5m deal. The deal, which was supported by the Royal Bank of Scotland, will allow Peart to continue to trade under the Peart and Performance Marque brands. The deal also sees Peart's owner, former Carole Nash managing director Damian Keeling, selling two years after having bought the insurance broker in August 2006.