MARINE insurance heavyweight Allianz has urged the London market to renew efforts to move piracy risks into war policies as the threat to shipping intensifies off Somalia. Allianz Global Corporate & Specialty head of hull insurance Sven Gerhard said that it was time for piracy to be taken out of general hull and machinery policies. In a new report on the piracy threat, Dr Gerhard proposed that insurers place piracy risk “where it best fits” with war insurance policies. “There are a lot of shipping companies out there that are paying for piracy cover that do not need it as part of their hull and machinery policies,” Dr Gerhard said. “Conversely, there are a lot of vessels that are exposed to high levels of piracy risk because of the routes they travel that — under current underwriting — cannot arrange more flexible, individually suited piracy coverage.” Allianz said that this inflexibility was a result of the continued habit among some underwriters of placing piracy as part of their general hull and machinery policies. Dr Gerhard highlighted that hull policies charge a fixed price year on year, irrespective of a vessel’s risk of suffering a pirate attack. By contrast, war policies can be more flexibly underwritten, and therefore more flexibly priced. Allianz, which reorganised its US and European business earlier this year, said that the claims arising from piracy attacks would be easier to settle if piracy risk was confined to just one war insurance policy “Having piracy risk confined to one policy instead of two cuts out a lot of the ambiguity and uncertainty that customers and insurers have regarding the scale of any liability on a claim,” Dr Gerhard added: “Japan, Sweden and Norway do this, and it is time that the rest of us followed suit. “As the nature of piracy risk is changing, insurance policies covering these risks also need to change.” Before 1983, piracy generally was covered under war risk policies and excluded from hull policies. However, over the last quarter-of-a-century piracy risks have drifted back into hull cover, with optional exclusion clauses intended to transfer the peril back. “Most underwriters did not adopt the optional clause, largely leaving piracy to remain under hull policies,” said the Allianz report. “The transition to war risk coverage of piracy risks could be helpful for insurers and policyholders alike because it would clarify ambiguity about how piracy is covered.” The situation is further confused with some shippers, who are without separate kidnap and ransom insurance, covering their piracy ransom exposures through the general average mechanism, whereby the owner, charterers, insurers and others agree to pay a proportionate share of a vessel’s expenses. “General average is very difficult to apply and is not specifically designed to address ransom threats,” Dr Gerhard said. the London market, in an effort to handle any gaps in coverage, has already transferred some 80% of cases involving piracy from the hull to war policies. “Discussions are also going on about the adaptation of kidnap and ransom insurance to this modern situation,” the report said. “If a risk exists, it needs to appear in the pricing or wording of insurance. Just calling a risk rare does not mean it will not happen.” Allianz marine hull underwriter Daniel McCarthy, who is a member of the Lloyd’s Market Association Joint War Committee, also warned that insurance premiums look set to continue to mount due to the escalating threat of piracy off Africa. John Barnwell, head of ocean cargo at Allianz, added that pirates were not interested in the actual cargo and just want to make a quick, high-value transaction. “As a result, the majority of cargo is unaffected, unless it is perishable goods,” he said.