DOES KIDNAP AND RANSOM (K&R) INSURANCE ENCOURAGE PIRACY?
United Nations Resolution 1851 (2008) determines at clause 9 that “ransom payments are fuelling the growth of piracy”. This is not a controversial statement as any pirate who succeeds in obtaining a ransom is going to want to repeat his actions another time hoping for the same outcome.

The British Government’s policy on the payment of ransoms has been made clear for a long time. Former pirate hostage, Captain Colin Darch , has said that had his shipowners not paid a ransom he would not have been freed. The continuing torment of Paul and Rachel Chandler’s captivity in Somalia testifies to this fact. The British Government will not involve themselves in the payment of a ransom or even negotiate with their captors and so the couple continue to be held against their will somewhere in Somalia.

The American Government on its website states: “ Increasing numbers of pirate hijackings and hijack attempts are driving up insurance premiums.” According to their own research: “London insurance brokers and underwriters estimates extra insurance premiums at $10,000 to $20,000 per trip through the Gulf of Aden.”

Business demands will mean that many of the 30,000 vessels annually crossing the Gulf of Aden have little choice but to pass through the Suez Canal. There are occasional reports of ships being re-routed around Africa but by and large these are a minority. It has been estimated that the chances of being hijacked by pirates are less than 1% but as always, it is the perception of crime that matters most.

The kidnap and ransom business has created a large superstructure of ‘agents’ obligated to different parts of it. There are the pirates themselves who are managed by onshore bosses or commanders, who it is believed take their orders from a higher tier who have intimate access to the movement and layout of ships. There are lower tiers of gang members on shore who will provide a range of basic operational tasks from cleaning to driving to running errands. Once a ship has been hijacked there are the agents and the owners of the ship who will engage any number of negotiating and relay services to keep communication going as far as possible. There are the insurance brokers, their agents and ransom bag carriers who may travel by land , sea or air to deliver the ransom. In the Gulf of Aden, there are a number of different naval Task Force’s dedicated to securing the passage of all ships in the region. Finally, there are all those in Yemen and Somalia who provide weaponry and stores to the pirate gangs.

Each of these units has their part to play in the maritime kidnap and ransom market. No one knows an accurate total of ransoms paid out in a given yearfrom companies such as Hiscox (opposite), but it is generally thought to be in the region of half a billion pounds. This means (even allowing for wild exaggeration) that the K & R market is a vibrant and booming one , if not also secretive, violent and mendacious.

It must be assumed that pirates make enough money from demanding ransoms to make it worth their while carrying on. A rise in insurance premiums as a result of an upsurge in pirate attacks coupled with a rise in port taxes means that the sums of money at stake get greater and greater each year.If a given ship has only a 1% chance of being attacked when sailing round the Horn of Africa, it is an easy conclusion to draw that a great deal of money is washing around the Marine Insurance Market.

On April 12th of this year, President of the United States, Barack Obama, issued the following Executive Order number 13536 in which the following was stated:
“I hereby order:
Section 1. (a) All property and interests in property that are in the United States, that hereafter come within the United States..........of the following persons are blocked and may not be transferred, paid, extorted, withdrawn or otherwise dealt in: “

The order then lists a series of Somali names that are implicated at the highest level of pirate attacks in the region. The idea behind the Order is that anyone connected with these individuals would have their assets frozen. This includes anyone handling or negotiating a ransom demand. Many commentators thought that this was Barack Obama’s direct repudiation of United States policy on the payment of ransoms to pirates. The truth is that the declaration is sufficiently strong to sound resolute, but sufficiently vague to allow for interpretation. In short, the kidnap and ransom market is one fed by the insurance industry but driven by the pirate clans that currently have the upperhand. When I rang the Department of Transport to request an interview with Shipping Minister, Mike Penning, I was told that he was unavailable. Despite the government’s stated position about pirate ransoms there is nothing on either the Department of Transport or the Foreign Office website to this effect. Might this be because the government needs the ransom network to gain access to the hostage takers who at the present time hold the whip-hand?