The true cost of piracy to the maritime insurance industry remains uncertain, a new report by the Actuarial Profession claims.
The report, which will be unveiled at the Profession’s General Insurance Research Organisation (GIRO) later this month conference later this month, will argue that the scarcity of statistics on maritime piracy make the estimation of risk difficult.
“Piracy attacks have been on the increase in the last 15 years,” said Neil Hilary, a staff actuary with the Profession and one of the authors of the report.
“But, since 2006, the level of attacks has increased by an average of 125%. And this is almost entirely due to the attacks by Somali pirates.”
However, Hilary says the challenge to the actuaries involved in pricing maritime insurance products is considerable.
“Actuaries are used to working with statistics which number thousands and tens of thousands. Despite the increase in piracy attacks, the numbers are still relatively small.”
In addition, says Hilary, the extent of the information about the attacks issued by shipowners is often vague.
“Understandably, shipping owners don’t wish to encourage further acts of piracy, but without knowing the full details we cannot come up with the true cost,” he said.
The authors of the report have been able to come up with an estimated cost of around $9m for each attack using publicly available data at the time and, with a success rate of six per million, this produces a kidnap and ransom rate of around $57,000 per vessel using the Suez Canal.
But Hilary says this is based on judgment, not on strict modelling. So, without accurate figures, uncertainty will remain – future costs may be significantly different, he warns.
Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities.