Pirates are good for business. Insurance companies and private security contractors have been cashing in on the ongoing piracy boom on the Indian Ocean. According to an analysis by the Lowy Institute for International Policy, pirates have given rise to a whole new dimension of insurance and private protection services.

The report estimates that about 2700 armed guards have been stationed on commercial ships along the Indian Ocean. The number of private contractors has yet to be established due to the fact that there is no official system for registry or qualification. This means that almost anyone with a sufficient budget and the right resources can take up the challenge and cash in on the game.

Holman Fenwick Willan (HFW), one of the world’s leading international law firms, reports that last year, there were 49 reported high-jackings, 42 of which took place in Somalia’s Gulf of Aden. There were 223 pirate-related incidences along the East African Coast in 2011 up from 172 the previous year. The Somalia Report estimates that pirates in the region have received ransoms worth USD 29.2 million in 2012 alone. In 2011, Somali pirates received USD 160 million (KES 13.4 billion) from a total of 31 paid ransoms, based on an economic survey by Oceans Beyond Piracy.

Hundreds of years ago, sea-fairing merchants had to deal with the ever-present threat of pirates. These scurvy-ridden sea dogs were a constant impediment to international traders. As time went by, their era came to an end or otherwise evolved into a less violent form of thievery.

Few believed that the age of piracy would revert back to its original form. Regardless of these and many other assumptions, the scourge of the seven seas have come back to wreak havoc yet again. From South East Asia to the Indian Ocean, pirates have caused millions of dollars in losses.

It therefore makes sense for sea merchants and luxury cruise ships to secure their respective cargo.G4S has even noted that pirate-security is a big commercial opportunity for security firms willing to supply their services. In Kenya alone, the private security industry holds an estimated value of no less than USD 50 million (KES 4.2 billion) and employs more than 70,000 people.

Insurance

Insurance against piracy has never been as costly as it is now.  Jardine Llloyd Thomson (JLT), a UK-based reinsurance firm, has noted an increase in expenses relating to piracy. JLT is one of the world’s largest vessel insurers providing insurance to over 4000 vessels. The company also controls 30% of the world’s Liquid Natural Gas (LNG) fleet in terms of service provision.

The firm has a broad spectrum of insurance services, ranging including healthcare, accidents, IT risk, Kidnapping and marine insurance. JLT notes that ships subject to excess premiums have increased from 22,000 in 2012 to 28,000 in 2012.

The company now offers private navy escorts for protection when crossing the Gulf of Aden at a basic charge of USD 30,000. According to a report by Marine Insight, the insurer has partnered with another firm by the name of Convoy Escort Programme Limited to provide protection to sea-fairing vessels and their cargo.

It has joined the ranks of other firms from Britain, Australia and New Zealand-based Barantas Security Group, which employ ex-navy mercenaries as well as other experienced servicemen.

Private Security

Private Maritime Security Companies (PMSC), as they are commonly referred to, cost between USD 20,000 (KES 1.68 million) and USD 50,000 (KES 4.2 million) to hire. One security guard alone can go for about USD 2000 (KES 168,000) for protection lasting up to 3 days. This is a small price to pay when you bear in mind that the average ransom for a captured ship is USD 4.58 million (KES 384.72 million).

The United States encouraged the use of PSMCs in 2011 as long as they abide by guidelines set in place by the International Maritime Organisation (IMO).

PMSCs are currently stationed in the Gulf of Aden, around Port Djibuti, Muscat, Salalah and Dar Es Salaam. Most of them get their weapons from Western Europe as long as they comply with pre-established Flag State Regulations.

Some people may prefer armed patrol boats on top of a crew of private security guards. The report states that there are currently 40 patrol boats operated by mercenaries around the Indian Ocean. These small vessels are used to monitor pirate activity around the bigger ships they have been hired to protect. Their profits have not been documented because they are not yet recognized as an official authority along the East African coastline.

On the other hand, Glencore, a multinational security firm, employs the same tactics to combat piracy along Singapore’s coast. The firm has so far invested USD 40 million on armed contractors, helicopters, drones, 3 boats and 50-calibre heavy machine guns.

Anyone looking for a sense of adventure and a substantial paycheck might want to branch into private security. Underwriters may also need to step up their game if they want to profit from this boom. If JLT’s initiative is anything to go by, pirate insurance may be the next big thing.