Word: ransoms
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...than terrorists, under U.S. or international law, which bans money going to individuals or organizations listed as terrorists. Unlike in, say, Iraq, Somali pirates appear to have little interest in killing hostages who are seized along with vessels, and the crews are usually released with the ships when the ransoms are paid. "Paying ransoms is not illegal," says Guillaume Bonnissent, a special risks underwriter for Hiscox Insurance Co. Ltd. in London, which writes about two-thirds of the world's kidnap-and-ransom insurance policies, known in the industry as K&R. In fact, insurance companies never pay ransoms themselves...
Here is how the system works, according to kidnap-and-ransom experts who agreed to talk to TIME: Within minutes of a vessel being seized by Somali pirates (or foreign oil workers being nabbed in Venezuela or Nigeria) the crew alerts its company headquarters. There, officials call the company's insurer, which then contracts a "response company" - private firms, like Control Risks in London or ASI Global in Houston, which are generally staffed by former military personnel experienced in hostage situations, and whose day rates can run to thousands of dollars, according to insurance brokers. Those companies begin negotiations with...
...negotiations which can drag on for weeks, the sum is agreed - usually more than $2 million for a container ship or oil tanker. Then the cash is air-dropped by private security companies that specialize in delivering ransoms to Somali pirates; insurance brokers say that's only about three companies. "The money is concealed in large floating plastic containers, and flown by air and dropped," says Mike Regester, an insurance broker for the London company Cooper Gay, which covers oil and shipping companies for kidnap and ransom. "Then the pirates go out and pick it up," he says...
...Gates' reasoning is unlikely to deter many companies, which simply cannot afford to lose hugely valuable vessels and cargo to seaborne bandits. Indeed, insurance premiums have risen along with the ransom amounts, according to Regester, who estimates that coverage for a single voyage through the Gulf of Aden costs about $20,000. With shipping companies hard-hit by the global downturn, some opt simply to take their chances running the gauntlet of pirates, rather than pay insurance premiums. "I reckon less than 10% of vessels are insured now," says Regester. "K&R policies are considered a luxury." Whether...
Since companies aren't likely to stop paying ransoms, Hillary Clinton on Wednesday told reporters that the State Department was working with shipping and insurance companies to "address gaps in their self-defense measures," in the hope that they can avoid being seized in the first place. Clinton's strategy announcement came days after U.S. Navy SEAL snipers killed three pirates who were holding Richard Phillips, the captain of the container vessel Maersk Alabama - the first U.S.-flagged ship to be seized off Somalia. The last-resort military rescue plan was put into action after ransom negotiations had broken down...