Piracy incidents off the Gulf of Aden have continued to rise at an alarming rate. According to a study on the Economic Cost of Piracy conducted by Oceans Beyond Piracy (OBP), a non-profit foundation that monitors piracy activities in international waters, ransoms paid to Somali pirates over the past five years have increased from an average of $150,000 in 2005 to $5.4 million in 2010. The largest known ransom payment was for the South Korean oil tanker, the Samho Dream, which was ransomed for a record $9.5 million in November 2010.
In 2010 alone, approximately $238 million was paid in ransoms to Somali pirates with around 500 seafarers from more than 18 countries being held hostage by pirates by the end of 2010. According to a new study by the “Oceans Beyond Piracy” working group sponsored by One Earth Foundation, Somali pirates attacked more than 4,000 seafarers with firearms or rocket propelled grenades last year and almost 500 seafarers suffered abuse or torture. The study also found that more than 1,000 seafarers were taken hostage, more than 500 were deployed as human shields, and more than 300 had to be rescued from citadels.
Shippers purchase four main types of insurance as indemnity against piracy: war risk, kidnap and ransom (K&R), cargo, and hull. The most significant increase in premiums has been in ‘war risk’ and K&R. The Gulf of Aden was classified as a ‘war risk area’ by Lloyds Market Association (LMA) Joint War Committee in May 2008, and is therefore subject to these specific insurance pre¬miums. The Cost of Piracy Model calculates the additional cost of insurance to the shipping industry by using a lower bound esti¬mate (10% of ships purchasing these insurance premiums) and an upper bound estimate (70% of ships). From these calculations, OBP estimates that total excess costs of insurance due to Somali piracy are between $460 million and $3.2 billion per year.
The total cost of piracy also extends to the cost of prosecuting piracy suspects. Over 750 Somali piracy suspects have either been tried for piracy, or await trial in more than 11 countries. OBP estimates the cost of piracy trials and imprisonment in 2010 to be around USD 31 million.
