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Somali Piracy

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In The Economic Cost of Somali Piracy 2011, Anna Bowden and Shikha Basnet (2012) estimated the total cost of Somali piracy to the shipping industry in 2011 to be in excess of $6.6 billion (1), though a significant portion of this figure is based assumptions, rather than actual facts. Due to the space restrictions of this critique, the analysis is limited to only the piracy insurance aspect of the cost estimate (14). Accordingly, starting with the overall piracy insurance cost estimate, the authors created a “rough estimate” (15) for 2010 of $460 million to $3.2 billion. After some push-back from the insurance industry, they were able to acquire more data from multiple resources and revised the cost estimate at $635 million for the year 2011 (16). The authors assumed that the insurance resources were correct in their assessment that the cost estimate was in fact excessive. Bowden and Basnet stated they felt more comfortable with this new estimate to “further develop the precision of [their] study” (15). In reality, it is still an estimate. Using further assumptions, they derived at the new insurance cost estimate. …show more content…

In assessing the number of covered vessels and insurance premium discounts, they assumed that only 50% of the vessels in the piracy-affected region carry War Risk insurance. In addition, they assumed that 50% of those covered vessels would be granted a “no claim bonus” (premium discount) of 50%. Next, they assumed that only 50% of the estimated War Risk protected vessels had Kidnap and Ransom (K&R) insurance. For those who carried both policies, a 50% premium discount was provided. Finally, they assumed that 25% of the vessels had armed security guards onboard and considered a premium reduction of 30%. They applied at least four assumptions in the piracy insurance aspect alone during the computation of the Somali Piracy cost

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