London market committee sees threat of terror from piracy in key shipping lane.

A spike in unusual pirate activity that could indicate a terror. ism risk prompted a key London market group to include a key international shipping lane on a list of war-risk areas.

The Joint War Committee, which represents the marine committees of both Lloyd's and London company underwriters, in late June published an update of its list of areas at risk for hull, war, strikes, terrorism and related perils for ocean shipping, which this time included the Malacca Strait. A narrow ocean passage that squeezes between Malaysia and Indonesia's Sumatra Island and past Singapore, the Malacca Strait is a key marine line between the Persian Gulf and South Asia and the Pacific Rim, through which more than 60,000 vessels pass each year. It also long has been associated with pirate activity targeting shipping. Neil Smith, marine manager for the Lloyd's Market Association and secretary for the JWC, said detailed information gathered by a security firm for the committee indicated unusual piracy activity in the strait.

While the JWC has been listing high-risk areas for a number of years, within the past two years the committee took a closer look at how the list was put together. The committee decided to engage an independent, third-party security analyst to help devise an up-to-date list. After vetting a number of security firms, the JWC settled on Aegis Defense Services Ltd., a London-based security firm.

What Aegis found out about the Malacca Strait is that pirate activity dropped off quite a bit immediately after the Dec. 26, 2004, tsunami disaster in the area. The pirates now are returning, at levels of activity at least equal to those before the tsunami.

"The people making these attacks now seem to be far more organized and far better equipped," said Smith. "They've got a far greater capability than they had before."

Such developments are causing underwriters a lot of concern, given that their loss exposure can hinge on what type of activity it is that causes damage--whether simple acts of piracy or an act of terrorism.

In a typical act of piracy in the Malacca Strait, bandits would board a vessel and subdue the crew, then look for money. "It's a generally low-level activity," said Smith. "But there have been instances as we now understand of people getting on board and testing the steering and control mechanisms on the vessels, then getting off. It is particularly disconcerting as to what's behind that. It ratchets up the concern."

The local governments, particularly those of Indonesia, Malaysia and Singapore, have pledged to step up security in the strait, "and that is gradually coming on-stream," said Smith. "But at present, the advice we have had from security consultants is that that is going to take some time to have an impact."

Some ship owners are making their own security arrangements, and crews "are being made aware of what they need to do," he said. "There's certainly some risk there."

Smith said the insurance involved is hull insurance, covering the vessels themselves, rather than the cargo. Shippers normally have an annual policy covering war and terrorism risk, and another annual policy for basic marine coverage. "The annual premium tends to be relatively low," he said. If a shipowner wants to travel into areas designated by the JWC as at high risk for war or terrorism, the shipper typically would go to the underwriter and negotiate a premium for coverage on that particular voyage or area.

There are 21 such areas on the JWC's June 20 list. The list reflects the recommendations the JWC got from Aegis, said Smith. The list hasn't gotten any longer over the past few years, despite wartime conditions in the Persian Guff and some hot spots around the Arabian peninsula and eastern Africa. "It just more accurately reflects the reality out there," said Smith. He added that, as more security information becomes available and as situations develop, the list is likely to "be very fluid" in future updates.

Danger Zones

The Joint War Committee's list of areas at risk for hull, war, strikes, terrorism and related perils, as of June 20, 2005:

Africa

* Algeria

* Djibouti

* Ivory Coast 

* Nigeria and Bakassi Peninsula

* Somalia

Asia

* Pakistan

* Thailand, southern Gulf coast of, between and including Songkahla and Narathiwat

Indonesia/Malaysia

* Ambon [Seram]

* Balikpapon [SE Borneo]

* Borneo, northeast coast of, between and including Kudat and Tarakan

* Jakarta

* Malacca Strait and adjacent ports

* Poso [Sulawesi]

Middle East

* Bahrain

* Iraq

* Israel

* Lebanon

* Qatar

* Saudi Arabia 

Philippines

* Mindanao, southern coast of, between and including Polloc Harbor and Mati

* Sulu Archipelago including Jolo