Thursday, 19 January 2012

London's insurance companies responsible for growth in piracy, the British Times says

"Many careers and many fortunes — all perfectly legal — are now founded upon this racket."

A senior columnist in the UK's "The Times" newspaper has flayed the country's insurance industry, implying that it is a profiteering racket that is the 'hidden cause' behind the growth in Somali piracy.

Matthew Paris says, "Piracy is funded by pirates and insurance companies. A whole network of agents and middlemen has sprung up and is used by insurers and shippers as a semi-formalised line of communication with the Somali pirates. Many careers and many fortunes- all perfectly legal- are now founded upon this racket."

"The greater part of maritime insurance is British, but very few British merchant seamen will ever be affected. You may speculate that the risk of the occasional loss of a few Filipino crewmen is preferred to a substantial hike in the cost of every voyage and the danger that maritime insurance would be driven away from the City of London," he says.

Parris is also critical of the recent Commons Select Committee on Foreign Affairs report on Piracy; he says it skirts around important questions because the insurance industry is run from the City of London and implies that vested interests are involved. Lambasting the report, the column points out that no "properly" armed ship had ever been hijacked, and asks why British insurers do not insist on armed guards on their ships instead of simply applying a discounted premium- something that the Committee should have recommended. (Instead, the Committee has made a somewhat cryptic-and telling- comment: that it is "surprised by the continuing lack of information about those funding and profiting from piracy.”)

"The insurance industry is collecting the money from world shipping, facilitating negotiations with the thieves and helping organise the payments to them. It’s all nicely sewn up," he says, adding that the industry seemed to be acting as middlemen, "effectively (however unwillingly) working for the pirates as well as their policyholders; and creaming off their cut from the transaction".

Parris claims that the only way to handle piracy is for the British government to make payment of ransoms illegal. This is too simplistic, and Parris acknowledges this-somewhat incompletely- saying that "public opinion in sensational and heartbreaking cases" would be big negative.

"So I propose that this be the long stop, held out as a threat to the industries should their co-operation in a more limited proposal not be forthcoming. This proposal is to require all British insurance against piracy in the Indian Ocean to be contingent upon the carriage on board of an adequate private security squad," he says, somewhat more realistically.

To be sure, Parris is not saying anything new; for years now, many have cited unsavoury practices widely prevalent in the interlinked ransom-negotiating and insurance businesses. The fact that intelligence and ransom money trails have led to major financial centres in the Middle East and the UK have often been commented upon, as has the secrecy surrounding most negotiations.

However, this is the first time a column in a prominent British newspaper has pointed a finger at the alleged shenanigans of the insurance industry in general located in the City. It will be interesting to see whether the British government responds to a serious charge that companies on its turf are- consciously and unconsciously- promoting the criminal activity of piracy.

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