Local business owners urged to protect against wave of piracy

The number and scope of pirate attacks is increasing worldwide, particularly along Africa's coastline. This week also saw one of the highest ransoms ever paid when Somali pirates received a record $US9 million for the release of the South Korean supertanker, Samho Dream.

According to Heidi Miller, Marine Manager at Lion of Africa Insurance, local business owners and company executives should not underestimate the financial risk that they are putting their companies in by failing to correctly insure cargo. It's not only bulk oil that is at risk, pirates will highjack R50 million yachts, as well as ships with various cargo containers because the ransom is more important to them than the contents.

Pirate attacks risk maritime trade, which accounts for 90% of global trade volume. In 2009, piracy hit a six-year high, with Somali gangs accounting for more than half of the 406 worldwide incidents.

Often the pirates don't even know what is on the ships. However, if the ship owner refuses to pay the ransom, and your cargo is in one of the containers on that particular vessel, you can lose a great deal of money if the pirates decide to destroy or steal the cargo in the containers, and you do not have adequate marine insurance in place.

Miller says that at the same time that piracy is on the increase, the recent global economic downturn has forced companies to cut costs, with insurance expenditure often the first to go. But if you lose your cargo to pirates and have inadequate or no insurance, you also have no recourse to action. Very few companies can afford to sustain those kinds of losses.

"Many companies are rerouting their cargo past the Cape of Good Hope, willingly increasing shipping time and expenditure, in the hopes that the cargo will reach its destination. However, this makes South Africa the next potential hot spot for pirates, making it vital for companies to ensure that they have adequate cover," says Miller.

Standard marine insurance does cover piracy and it is possible to get a policy that covers both the cargo and the ship. However, in South Africa, companies typically only need to cover their cargo as it is transported by independent shipping companies. These large ships are generally covered by Lloyds in London because of the substantial value of the hull.

Miller says another concern is that marine insurers don't always fully understand the risks faced by companies transporting goods by sea.

It'ss important that you find an insurer that takes into consideration all aspects of the risk and advises accordingly on things that can go wrong.