Need pointers on avoiding pirate risks from the experts? Now, the Standard Club offers a free report on avoiding pirate risks, including hiring private security firms when government security is insufficient. The UK-based Standard Club insurance firm specializes in insuring shipowners against liabilities, insuring 73 million gross tons globally.
As I’ve noted previously on this blog, Pirate activity off the coast of Somalia has skyrocketed in 2008, gaining the attention of both the government and private sectors. According to Forbes, insurance premiums for ships passing through Somalia’s Straits of Aden have gone up 10x from $900 to $9,000, because Pirates are demanding millions (e.g. $35M for a Ukrainian ship headed to Kenya with tanks and other military equipment). The private military firm, Blackwater Worldwide has reportedly sailed a ship with helicopters to escort customers through the Straits of Aden, as part of an expert security force form of insurance. The price firms are willing to pay for Blackwater or Standard’s insurance is a special case of Real Options – insurance paid to avoid violence, damage or ransoms. This market is worth between $13 billion and $15 billion annually, according to Forbes.
Standard Club’s recommendations include:
- High alert for any ship within 300 miles of the Somali coast
- Speak with ships that have recently sailed through the area
- Prepare a response plan to include communications, media and crew management
- Post extra lookouts
- Ensure bridge team is fully staffed
- Maintain constant radar vigilance
- Long Range Acoustic Devices – emiting painful sound – have shown to be a useful deterrent
- Thermal Imaging Devices can give advanced warning
The right, but not obligation, to deploy these technologies, and the training of the crew to use them effectively, amounts to a Real Option, used by Finance to value uncertain and risky investments, and mitigate major downsides. In this case, technology, private security, business processes, and maritime insurance can be used to mitigate pirate risks. My colleague Dr. Johnathan Mun of Real Options Valuation has excellent software that I like to use to evaluate how much it would be worth to invest in one or more Real Options. Check out his website if you’d like to learn more – he’s a great teacher.
Technorati Tags: Risk, Business, Management, Pirate, Real Option, Finance, Insurance, Somalia, Pirate, Technology
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