As new figures reveal a collapse in pirate activity off Nigeria, authorities are demanding an end to the War Risk Insurance Premium on imports. By Francis Ezem in Lagos.
The federal government of Nigeria is currently pushing for the abolition of the controversial War Risk Insurance Premium for all ships entering the country through the Gulf of Guinea.
The drive to scrap the ‘piracy tax’ follows the successful deployment of the country’s maritime forces under the Integrated National Security and Waterways Protection Infrastructure – better known as the Deep Blue Project – which has helped reduce crew kidnappings across the region by more than 90 per cent, according to the latest figures.
The premium is a type of insurance that covers damage due to acts of war, including invasion, insurrection, rebellion and hijacking. It has two components: war-risk liability, which covers people and items inside the ship, and is calculated based on the indemnity amount.
The second component is the war-risk hull, which covers the vessel itself and is calculated based on the value of the craft.
The premium varies depending on the expected stability of the countries to which the vessel will travel, but the premium is associated with increased cost of living, as shipping companies are forced to claw back the cost from importers, driving up food and fuel prices.
Originally enacted in 1914 by the United States Congress to cover the cost of sunken merchant shipping during the First World War, the policy was resurrected in 2017 by Western-based shipping lines and insurers on all Nigeria-bound vessels and crew in reaction to increasing piracy in the Gulf of Guinea region.
With piracy now dramatically curtailed, experts believe the time has come for the premium to be scrapped.
Recent piracy figures released by the Malaysia-based International Maritime Bureau (IMB) showed a drastic reduction in the number of attacks and kidnappings in the Gulf of Guinea in the first three quarters of 2021, ending September 30.
Nigeria, for example, only reported four incidents of piracy in the first nine months of 2021, the most up-to-date figures available, compared to 17 in 2020 and 41 in 2018.
The IMB also disclosed that the number of crew kidnapped in the region dropped from 50 in the last quarter of 2020 to 10 in the second quarter of 2021, which represents an 80 per cent decline.
Meanwhile, the figures for the third quarter of 2021 were even more positive, with only one sailor seized in the Gulf of Guinea between July and September 2021; the same three-month period in 2020 saw 31 crew members taken in five separate incidents.
The fall-off follows a concerted effort by the Nigerian state to fight piracy, sea robbery and other forms of maritime crimes in the country as well as the Gulf of Guinea region.
Chief among this was the Deep Blue Project, for which the Nigerian government has invested over $175 million, and has seen authorities combat piracy from air, land and sea.
Speaking on the achievement of its anti-piracy initiatives, Michael Howlett, a director at the IMB, commended Nigeria’s efforts at tackling the challenge, adding that reporting all incidents to the regional authorities and the IMB will ensure seafarers maintain pressure on the pirates.
Yet despite the beefing up of anti-piracy measures, the fall in pirate attacks has not attracted any response from the foreign underwriters or the shipping lines, which has left experts wondering whether the premium was for reasons other than piracy.
While speaking with the media at the side line of the Seafarers’ Day celebration in Lagos in June 2021, Bashir Jamoh, director general of the Nigerian Maritime Administration and Safety Agency (NIMASA), expressed concern over the continued retention of the premium on Nigeria-bound cargo when the factors that gave rise to its introduction have been addressed.
He believes there is an urgent need to rethink the policy, given the declining piracy rate in the nation’s territorial waters in particular and the Gulf of Guinea as a whole.
An abandoned Nigerian pirate ship (above).
He also expressed fears that the country’s maritime trade was being threatened due to the increasing War Risk Insurance Premium now being paid by Nigeria-bound vessels, which is ultimately passed down to the final consumers of the imported goods.
Jamoh said: ‘Stakeholders in Nigeria are worried that though piracy and other crimes on the country’s waters are waning, the offshore underwriting firms still insist on very high premium to be paid by those conveying cargoes to Nigeria.'
‘Since the deployment of the Deep Blue Project assets in February [last year], there had been a steady decline in piracy attacks on the Nigerian waters on a monthly basis. We invite the international shipping community to rethink the issue of War Risk Insurance on cargo bound for our seaports. Nigeria has demonstrated enough commitment towards tackling maritime insecurity to avert such premium burden.’
He added: ‘Bringing together maritime response authorities through initiatives like Nigeria’s Deep Blue Project and Gulf of Guinea Maritime Collaboration Forum, will continue and strengthen knowledge sharing channels and reduce risk to seafarers in the region.’
Suspected pirates being placed under arrest (above).
Nigeria also enacted the Suppression of Piracy and Maritime Offences Act in 2020, under which 10 pirates have already been prosecuted and jailed.
But while maritime trade in the region is becoming safer for crews, this is yet to translate into a reduction in insurance costs for the companies involved.
Available records show that global insurance firm Beazley are having to offer ‘Gulf of Guinea Piracy Plus’, a bespoke insurance plan for maritime crew travelling through the region.
The plan provides compensation for illegal vessel seizures and crew kidnappings even in the absence of ransom demands. It tracks insured vessels on a 24-hour basis and limits its claims to $25 million.
Captain Emmanuel Ihenacho, CEO, Genesis Worldwide Shipping, one of the thriving indigenous firms, believes that this insurance premium substantially contributes to the spiralling inflation rates in the country.
Reports by the National Bureau of Statistics (NBS) released in mid-July show that the country recorded its highest rise in inflation over the past four years, which was also around the period the premium was introduced.
The reason for this spiralling inflation, which stood at over 15 per cent according to figures released in December, owes much to the country’s heavy dependency on imports; Nigeria ships in everything from raw materials to most of its finished and semi-finished goods.
The total economic cost of piracy in West Africa has been estimated at a staggering $2.3 billion in the three-year period from 2015 to 2017, representing an annual loss of nearly $800 million.
While reacting to the IMB report, Jamoh described it as a welcome development and also gave the assurance that the agency would not lower its guards in ensuring zero tolerance for piracy on Nigeria’s waters and in the Gulf of Guinea.
He ascribed the feat to the concerted efforts put in place by the Gulf of Guinea countries and navies, and called for a more holistic approach in quelling the incidences of piracy in the region.
‘Matters concerning maritime security are everybody’s business as no country has immunity against insecurity and piracy-related offences,’ he said.
‘Crime is usually a step ahead of every organised society, hence the need to step up our game through continuous synergy and enhanced information sharing in the West and Central Africa sub-region.’
He added that Nigeria will continue to engage the international maritime community to eliminate the premium.
Experts believe the premium is one of the biggest burdens on the Nigerian economy, which is currently struggling with the effects of national and international lockdowns.
