Michael Sharp joined Beazley Group in 2012 with the remit of developing its kidnap and ransom (K&R) book of business at a time when demand for this highly specialist class of business continues to grow significantly. Sharp, who is ‚Äúrelishing‚Äù the opportunity, explains what is fuelling so much interest in K&R.
Have you seen any difference in the level and ferocity of piracy attacks over the past 12 months?
The Somali piracy phenomenon, which began in earnest back in 2008, has had a big impact on the growth of K&R insurance. Initially vessel owners were reluctant to purchase K&R cover as they felt that they were adequately covered under their war risk policy. However, as the number of piracy incidents increased, the value of K&R insurance also became apparent, and this class of business came into its own.
Over the past 12 months there has been a decrease in the number of piracy attacks, in particular by Somali pirates. This reduction is, I believe, mainly due to an increased number of ships having armed guards on them, in particular on vessels sailing in high risk waters such as the Indian Ocean. However, It is difficult to predict whether this trend will continue. With increased financial pressure on vessel owners it is likely that there could be a decrease in the number of vessels carrying armed guards going forward, which may result in an increase in piracy incidents once again.
Interestingly, the area currently experiencing the most pirate activity is the Gulf of Guinea, where Nigerian pirates are hijacking vessels and stealing their cargo or kidnapping crew and then demanding payment to release both cargo and crew being held on land in Nigeria. Worryingly, the pirates seem more aggressive in this part of the world, and sadly this is reflected in the higher proportion of crew fatalities experienced recently.
To what extent are anti-piracy measures taken by vessels helping reduce attacks?
In addition to armed guards on vessels, there are a number of successful anti-piracy operations being undertaken by international naval forces operating in the Indian Ocean. There has also been the implementation of industry standard, best management practices that have been refined over the last five years, and these measures are definitely reducing the number and frequency of attacks.
There is typically a lot of secrecy surrounding ransom payments – why is that?
We have a duty not to increase the threat of kidnapping and piracy for ransom around the world, which is why any ransom payments remain highly confidential. The size of ransom demands has been increasing in the Indian Ocean ‚Äì perhaps because fewer successful attacks are taking place – but demands and payment are two separate things.
Which regions are of most concern from a K&R perspective?
At the moment Africa is a kidnap and ransom hotspot, particularly Nigeria and its surrounding territories. The recent terrorist attack at the Amenas gas facility in Algeria fell outside the normal scope of kidnap and ransom cases, and is cause for concern. This incident has increased interest in cover for detention as part of a terrorist attack.
In Latin America, kidnap and ransom is still a significant problem. This is particularly an issue in Central America, where drug cartels are involved within Mexico and its neighbouring countries that serve as drug smuggling routes from South America. However, the apparent renunciation of kidnapping by the revolutionary armed forces of the Ej√©rcito de Liberaci√≥n Nacional (ELN) and Fuerzas Armadas Revolucionarias de Colombia (FARC) in Venezuela and Colombia has resulted in a shift in activity. Traditionally the ELN and FARC kidnapped people for political reasons and held them for a number of years ‚Äì however recent kidnapping incidents in the region are now arguably mainly perpetrated by criminal gangs.
What are some of the most memorable risks you’ve underwritten?
The most memorable risks I can think of are the ones that I didn‚Äôt end up writing. I remember in the very early days of the piracy market I quoted at least two voyages where the client didn‚Äôt buy the cover, and the vessels were subsequently hijacked. During the early stages of the development of the product it was extremely difficult to underwrite effectively as the risk was constantly developing, but ironically the claim costs for these two incidents were a fraction of what they would likely be now. So, if I had written both of these accounts it still wouldn‚Äôt have been a disaster for the company in the long-run as they may have helped to raise awareness of the value of the cover.
The Lloyd’s market has a long history of providing K&R – does this kind of specialist cover play to the strengths of Lloyd’s underwriters?
Absolutely, Lloyd‚Äôs is renowned for specialist cover, and K&R falls into this category. It requires specialist knowledge and understanding of the risks, and there is a wealth of experience in the Lloyd‚Äôs market. A key part of any K&R policy is the service provided to clients both pre- and post-incident, and the ability for Lloyd‚Äôs underwriters to provide product innovation remains at the heart of this concept. For Lloyd‚Äôs to remain competitive in an increasing global insurance market, it must move swiftly to meet the needs of clients in light of the ever-changing global risk environment.
Michael Sharp joined Beazley’s marine team in June 2012 to underwrite both marine and non-marine kidnap & ransom business.
He has over nine years experience in the insurance market and four years underwriting kidnap & ransom.¬†
Sharp is also a Chartered Insurer.