Insurers warn pirates holding business to ransom

Businesses will have to pay a rising "piracy tax" to maintain global trading networks, according to the Lloyd's of London insurance market.

A report commissioned by Lloyd's found Somali pirates are beating the credit crunch, with rogue crews seizing more than 60 vessels and earning some US$80 million ($88.35 million) in ransoms.

Separate figures from the International Maritime Bureau showed a doubling of piracy attacks in the first six months of this year, with virtually all the increase due to Somali pirates.

Ransoms can be as high as US$3 million, and other costs include delays in releasing ships and increased insurance premiums.

Mainstream "hull and cargo" policies do not normally cover piracy, so captains have to purchase separate "kidnap and ransom" cover.

Costs also rise if shipping is rerouted to avoid hotspots such as the Gulf of Aden, which is on the direct route to the Suez Canal, where revenues are down more than 20 per cent, partly as a result of piracy.

The Lloyd's report warns that piracy increased in Southeast Asia in the 1990s in wake of the Asian financial crisis and the same is likely to happen in east Africa.

Concern that piracy might have moved closer to home gained ground last week after fears grew that a missing Russian ship, the Arctic Sea, had been sailed through the Straits of Dover by pirates. It was later reported to have been sighted off the west African coast.

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