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Insuring Armed Security More Expensive Than Piracy?

In a New York Times article carried by the Seattle Times, maritime shipping executives apparently choose not to hire boarded security teams (or arm their own crews) to protect against piracy off the coast of Somalia because the cost of insuring the vessels with armed security aboard is significantly higher than insuring them against piracy unprotected.

Shipping companies victimized by the bandits have been wary of a military confrontation that could disrupt the crucial shipping lanes that run from the Suez Canal to the Indian Ocean. Experts said companies would rather pay hefty ransoms than arm merchant crews and pay hefty liability-insurance premiums; in 2008 alone, experts estimate merchant-shipping companies paid some $40 million to the Somali pirates.

Instead, have a peek at what the firms do.

Rather than arm their crews, most of the major merchant lines with ships transiting the Gulf of Aden have contracts with professional crisis teams that are called when hijack situations occur.

These teams include former special-forces commandos and trained hostage negotiators who deal with the hijackers and their ransom demands, deliveries of food and supplies to ships during lengthy negotiations, the delivery of ransom payments (usually in U.S. $100 bills), and the safe release of hostages.

After a careful read, it is unclear whether the insurance cost skyrockets for arming the existing crew or hiring professional security aboard the ship or both.

But one thing is for sure. There is a serious problem here when insuring a crew exposed is less expensive than insuring it protected. At any rate, insuring an armed sea-faring crew is surely higher than insuring with trained professionals handling the weapons.

Insurance is, however, an endeavor of odds and probability. It is unlikely - from an odds perspective - that a ship will be hijacked in the Indian Ocean. And perhaps the odds of an accident by untrained men handling arms is higher. However, at some point, the risk to employees becomes great enough that a moral obligation to protect them should become undeniable. That's from a business perspective.

From a governmental perspective, when the majority of American flagged ships become hardened targets enough to turn the pirates' perception into one of a losing proposition rather than the current perception of being profitable to take on, then the threat of piracy (for at least those ships) diminishes or ceases to be.

Nonetheless it is stunning, if perhaps logical, in the final calculation that insuring a protected ship is a greater expense than insuring against defenseless piracy at sea.

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