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The sharp increase in recent attacks by Somali pirates has caused the insurance industry to respond, with some rate increases for marine coverage and the implementation of a program offering 24-hour communications links to help steer merchant ships away from danger, according to experts dealing with the issue.

Marine rates shot up immediately after the rescue of pirate-held hostages on April 10 and April 11 in U.S. and French military operations as part of an international naval task force to protect shipping, but may drop back quickly, said Peter Townsend, London-based head of marine hull for Aon Corp.

?Different underwriters, at any one time, have different appetites for the piracy risk,? he said.

How the pirates respond to the military operations, in which several of their number were killed, ?is the $64,000 question,? Townsend said. He noted that four ships were attacked within 24 hours of the military operations.

Ships using the Suez Canal sail by Somalia?s Red Sea coast, and then must cross through the expansive Gulf of Aden, which could take up to two days. According to the International Maritime Bureau?s Piracy Reporting Center, since March 1 there have been 25 attacks on vessels in this region, resulting in seven hijackings, despite the presence of the naval task force.

In the latest attacks reported by the IMB, three cargo vessels in the waters near Somalia were attacked by pirates on April 14, with two being seized and the third escaping after taking evasive maneuvers.

?As we are seeing an increase in the number of attacks, there is an increase in the number of inquiries,? said Doug Milne, chief executive of Special Contingency Risks Ltd., a U.K. subsidiary of Willis Group Holdings Ltd. that specializes in providing kidnap and ransom covers around the world.

?Rates on a single passage through the gulf, a ballpark figure, are around $30,000 U.S. for $3 million in cover,? Milne said.

Concern in the shipping and insurance industries about the rising incidence of piracy off the Horn of Africa began growing last year (BestWire, Nov. 21, 2008).

In response to the latest surge, Milne said that in March, SCR introduced its vessel shield program, which works with ship owners and captains to plan when and by what course to travel, globally, to avoid pirate attacks.

The program affords 24-hour-a-day contact with the ship at sea via satellite phone, provides warnings about attacks or reports of suspicious activity, and helps the ship?s master to respond with evasive tactics if attacked. It also provides negotiations experts in case a ship is taken, he said.

Ship ?hardening? also prevents boarding, Milne said. Captains have used heavy mooring lines, floating behind ships, to make it difficult for the small skiffs to approach. They have poured diesel fuel on their decks to make them slippery, unhinged ladders, hung coiled barbed over the side of decks, among other methods.

?But if they?ve got a rocket-propelled grenade pointed at you, you?re probably better off becoming their guest for a while, rather than risk getting your head blown off,? Milne said.

The two-week detour around the southern tip of Africa is not seen as an acceptable alternative because increased fuel and other costs could add up to $200,000 per trip, Townsend said.

Another solution may be to have armed security on board these ships, said Howard Mills, chief adviser for the insurance industry group at Deloitte LLP and a former New York state insurance superintendent. The insurance industry could push for changes in laws that ban ships carrying weapons from many ports, he said.

?An international agreement allowing large commercial vessels to arm themselves, to have a security force on board as required, if the industry presses that kind mitigation as a condition for coverage, that could ? could ? help compel those agreements to move forward,? he said.

But arming merchant vessels is not a universally accepted solution.

?I have serious reservations putting men with guns on boats,? said Milne. ?There?s a serious risk of an escalation of violence. ? Usually, when the pirates start opening fire, people put down their weapons, because they not going to risk getting killed for it,? he said.

There may be no real solution until there is a functioning Somali government, Milne said.

?Unless there is a Somali solution, it is very difficult for an international task force to do it,? Milne said. ?It?s very expensive, the area is very large. Unless their bases on land are hit, there isn?t a solution (and) I don?t think the international community is ready to invade Somalia to provide a solution. ... This is a long-term problem.?

(To listen to an interview with Howard Mills in the near future, go to www.bestdayaudio.com.)

(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)