39: The Insurance Market for Modern-Day Pirates

about insurance and pirates? So if you told me that, I would say anything Pirates related is sure to explode of the viral content all over the Internet, and that people will be thrilled about this episode because I know how the internet loves pirates, and so I would say, I'm very excited about that. All right. Everyone loves a good pirate story, right, and everyone loves a good pirates market story. So let me exactly. Let me set the

scene for us. So last year, you might remember, Joe, there was a bunch of news coverage about a ship that sank. It was called the Thunder and it was illegally fishing. I think it was fishing for something called the Patagonian toothfish. Do you remember that? I have to admit I'm not sure if I remember that one specifically. Okay, So the interesting thing about that ship was it was supposedly sunk by its crew, so it was sunk on purpose. It was being pursued by another ship because it was

illegally fishing. And the really interesting thing is the Thunder actually was insured by someone by quite a prominent London based insurance company, and the owners of the vessel, the self sunk vessel supposedly ended up coming after the insurance company for compensation, which you might not expect, right, Like pirates essentially going to insures to get compensation seems a bit weird. Yeah, you definitely wouldn't expect it for all

kinds of reasons. I think one reason that jumps out at me is just a fascinating story is this intersection of something that seems rogue and outside the law and old timey with pirates, and something like insurance, which I think of as being highly regulated and highly sort of this modern financial thing. And so the intersection of the two is pretty fascinating. Exactly, So it turns out that insurance companies ensuring illegal fishing boats is actually a lot

more common than you would think. And we have someone here today who's going to be able to talk to us a lot more about it. She's Dana Miller. She's a marine scientist at the University of British Columbia and she actually published a study just last month saying that illegal vessels appear to be insured almost or just as often as legal vessels. Again, very interesting dynamic that you wouldn't necessarily expect. Dana. Welcome to the show. Thanks for

joining us. Oh yes, hi, So just to begin with, maybe you could walk us through your expertise in this subject, because in my mind, it's not often that marine scientists end up looking at the world of insurance. Yeah, it's kind of an obscure topic. UM, that's for sure. UM. Well, I generally focus on policy issues. UM. That's where my

research has kind of led over the years. UM. I should mention that I was previously a postdoctoral researcher at the University of British Columbia and that's where I conducted this research. UM. But presently i'm I'm I'm actually working for a UM non government mental organization Oceania. UM. And I'm taking this recent research project forward into a new stage. But yeah, I'm I'm very broadly focused in my research

interests and it tends to be quite applied. So I look at different conservation problems in the marine environment, and UM just I'm not limited to anyone discipline. I kind of go out there, learn what I can about the problem, and um find some tools and do some research to try to um develop recommendations for solving that problem. So that's in a way what led me to um, you know,

the topic of insurance and illegal fishing. So just to put it all together, it actually makes a lot of sense that you would look at insurance markets from this sort of uh marine conservation standpoint, because the boats that are being insured, they're illegal fishing boats. They're using methods there that are illegal, they're contributing to over fishing, and theoretically, if they're able to get insurance on that activity, then that is sort of a de facto subsidy that could

harm the harmony ecology. Yes, yeah, that's right. Well, we actually we came to the topic of insurance because UM, I guess we were looking for an innovative approach at tackling illegal fishing UM. As you may be aware, it's an unresolved, internationally pervasive problem. It's UM. It's quite destructive to marine habit hats and unsustainably depletes fish populations. UM.

It's it's just a big, bad problem. And common approaches used in combating illegal fishing typically involve UM surveillance activities inspections much more obvious UM approaches. But we decided instead to consider the economics of illegal fishing UM and understanding that if the costs of illegal fishing are made higher or the benefits reduced UM, fishers may not be as

motivated to illegally fish. And insurance comes into this because insurance can be financially beneficial to a vessel because it eliminates the risk of large financial loss should an accident occur. So, understanding all of this UM, we wanted to investigate whether illegal fishing vessels use marine insurance as a financial service, and that that was kind of our starting point. And and then step one is to figure out can we find those inks between illegal fishing vessels and insurance companies.

So how profitable is illegal fishing actually and how much does insurance play a role or how big a factor is insurance in that profitability. So I don't have numbers in front of me, but I can tell you that I mean, obviously, there are many different forms of fishing, and some forms of fishing aren't very profitable at all. It depends on what is being what species is being fished for, UM, where the fishing is taking place, how

large that operation is UM. You mentioned earlier, UM the incident with thunder and Thunder was fishing for Patagonian toothfish, which is actually a highly profitable UM fish. So there would be much more economic incentive to fish for that particular species UM and to illegally fish in this case for for that particular species. But that wouldn't always be

the case. You know. It is UM looking at that UM equation of costs and benef fits and figuring out where insurance fits in UM, how much the insurance might cost, and whether it's a worthwhile cost to the to the operator of the vessel and UM that you know, that was a question that we asked, As I said, are illegal fishing vessels utilizing insurance? Is this something that is

part of their equation? And surprisingly to me, when I when I first did this UM the investigation, I wasn't expecting to find find out that some of these vessels were using insurance UM, particularly in cases where they weren't legally required to. But as it turns out, a lot of them were using insurance, and we were able to find links UM to evidence supporting the existence of these policies.

So let me just ask the obvious question. I mean, this particular vessel, it had already I would say, a checkered past UM, it had switched its flag of origin several times. UM. It seemed obvious there were issues with it. So why was it able to insurance? That's a very

good question. UM, That's a question I've asked myself many times and UM, and I think that the simplest answer is that I believe I feel that the simplest answer is that the due diligence process UM involved in, you know, screening a vessel prior to UM providing it with insurance just simply doesn't include searching for information on illegal fishing. So there are lists of official lists of illegal fishing vessels that exist that are publicly accessible, but insurers UM

are not checking these lists. That this problem is just simply not on their radar. UM, which is it's surprising when there's such notorious, publicly visible illegal fishing vessels that are still able to gain insurance. But but it just seems as though it's not part of their process. It's really surprising. I mean, just thinking about getting insurance on a car, and the car is not a very expensive

item to ensure relative to a boat. But you know, you instantly would get checked for the driving record, the record of the driver, and the history of the car and all kinds of things. So it seems surprising that on these boats, which are much bigger deals than h than cars, that there isn't much due diligence on that, right. Or you think about the financial industry in general, right, and we have all these rules, especially for companies like banks about know your customer, all of that. Has that

not fed into the insurance industry at all? Oh, certainly, I think obviously it has. But in concerning illegal fishing as an issue, I don't. I don't think that insurers feel that they're responsible for this particular issue. That it's it's just not on their radar yet. Probably nobody has ever brought up this issue. Um, you know, to the industry,

it's it's not something they've ever thought about. I thought that that had concerned them so UM, but that can change, obviously, UM because of this research for bringing attention to the issue and showing that insurers can potentially have a more active role in regulating the fishing industry and cutting off access to financial services such as insurance UM to illegal fishing vessel operators. But yeah, I mean it is very

it was very surprising. But like I said, it's just it simply was being missed and I think that's as I think that is as simple as as it is. So we mentioned the example of the Thunder notorious illegal vessel caring insurance. How many vessels did you actually find illegal vessels that had insurance policies on them or links

to insurers? Yeah, So we screened the internet for sources of information and in total we had we were looking for information on four hundred and eighty vessels that have either been officially listed or they're suspected by UM governments or non governmental organizations for involvement in illegal fishing UM and in total we identify the insurance of sixty seven vessels that have been known for their involvement in illegal

fishing illegal fishing activity sixty seven. Wow. Keeping in mind UM that list that we began with a four vessels UM, some of those vessels we had very little information on, so it was difficult to search for any information on them. But but I was of course very surprised at the high number sixty seven UM that we were able to

find information on. So when you think of pirates, you know, and why piracy on the high seas exists to the day, there's the obvious problem that nobody really really regulates the oceans, right, I mean, there are these treaties and stuff where people try to do it in various entities, but ultimately oceans are sort of the last sort of truly lawless place

left on Earth. Does that problem of the difficulty of regulating oceans applied to regulating the insurance companies that would have to provide financing for the oceans that nobody has? You know that the various insurers out there who might be providing this maritime insurance don't have a single regulator that could command them to implement something like know your Customer or something like that. That there's no any you know,

sort of governing body for them. Well, I don't I don't think that that's necessarily the issue here, because I wouldn't say that marine insurers aren't well regulated, it's just that they're not made to pay attention to this particular issue. UM. It is true that that fishing vessels are often overlooked in international legislation, particularly when they're operating in what we call the high seas so um waters that are outside

the reach of any one nation. They operate um outside of uh two nautical miles of any coastal state, that's what we call the high seas um. And often these vessels under international law, they they aren't required to have the same UM safety they don't have a safety same safety requirements um UH, they're not required to have an International Maritime Organization number affixed to the vessel. They're not necessarily required to have UM any kind of vessel tracking

technology in use. UM. So there's a very there's various things that are normally required of vessels UM that aren't necessarily required of fishing vessels because they just kind of slipped through the cracks, and particularly when they're operating in the high seas um and they're not being watched by anyone particular country, that well, there's a whole variety of

different issues that play here. UM. I won't get into detailed with them here, but vessels they are registered under countries as well, and we have a common practice um UM within the maritime world of using a flag of convenience, and that's registering a vessel under a country that that vessel may not have any obvious affiliation to UM and it's a way of kind of skirting some of those regulations. I'm kind of getting off track here, but you mentioned Ase loves nerdy in the weed stuff, so this is

all really important. You just kind of mentioned the lawlessness nature of the high season and particularly with fishing vessels. You you touched on something there, because there are a whole number of issues that that we within the NGO community and also academics are trying to UM discuss and

improve the situation. So if Joe and I bought a ship of some sort and registered it under the most convenient flag of convenience and then we went out illegally fishing, how easy would it actually be for us to get insurance? Would anyone kind of ask questions or check the background? What's the actual process here? Yeah, So that was one

question also that I was interested in. I'm interested in UM whether insurance companies UM prefer a vessel to have UH be registered under the flag of one country versus the flag of another, so that you know, the flag of a country that is more reputable in terms of adhering to various different regulations UM as opposed to another country that is known for UM for not being so

good in that department. So UM, that was one question that I was trying to figure out, whether you know insurers or aware of that, and I am still involved in that work now where UM within this new role at the Oceania UM that I'm not now in UM, I'm hoping to work with the insurance industry to engage with insurers and try to learn more about the policies and procedures that are in place UM UH for ensuring fishing vessels and UM whether they can UM introduced new

policies to pay attention to some of these things that may not be so obvious UM maybe screen against UM some of the characteristics that are more common amongst illegal fishing vessels. So have you seen any evidence yet that you know, perhaps due to the publicity that the thunder incident got that insurance companies want to start taking this

issue more seriously. UM. Yes, I do believe that that the media attention that has been gained UM through the publication of um our manuscript, which occurred about the UM just over a month ago. UM, I believe that we have gotten the attention of UM individuals within the or contacts within the insurance industry. UM. I have been in touch with UM some contacts representatives from various insurance companies to share that manuscript UM and UH, I'm optimistic I UM.

So far there has been a positive response UM from those I've been in touch with, and most contacts have acknowledged the importance of this work and showed some interest in engaging in future discussions with me on this topic. So I feel that there is an opportunity here for sure, UM and I'm very optimistic. All right, Well, Dana, thank you so much for joining us today. That was really really interesting and topic that I think a lot of

our listeners will enjoy as well. Yeah, it is really fascinating. Thank you very much. Thanks so much. Trizy. That was awesome and I got really excited about that part where you talked about us buying a ship together and get an insurance because now I think we should totally do that just as a big, a big stunt, a big act of performative journalism. Should this be our summer project. We'll go to Nigeria, get a up, we'll go fishing,

and we'll see if we can get insurance. Excellent, all right, On a slightly more serious note, I mean, I thought the whole topic was really interesting, and again mostly because you never really think about the role that insurers might have in piracy or in illegal fishing, and certainly not on you know, the environmental landscape, which is obviously suffering

from illegal fishing quite a lot. So I wonder if in the future this will be the kind of thing where we have criminal based um bitcoin based insurers, because if you think about, you know, insurance reduces the cost of doing business for crime. But typically criminals can't get insurance. But if you could theoretically have an insurance company that was completely outside of the purview of regulators, uh, there would probably be an opportunity there to ensure extra legal businesses.

And I wouldn't be surprised if at some point in the future whether we see UH, the Internet enables such activities. So I have to No, it's not. Actually, so I have two responses to that. One is which Christine Legard actually gave from the I m F gave a speech on a similar topic last week about banks and the know your Customer rules and how because of these new rules, banks were retreating from certain areas of the world, certain geographical areas, and so that left a whole for illegal

operators and potentially bitcoin based banks to come in. Uh So it's not that out there. My second thought though, and this is related, is that there's a school of thought about how insurers could eventually grow to become the arbiters of human behavior and business behavior, because after all, they're the ones who have their money on the line

and they end up actually shaping human behavior. So in the future, rather than having you know, potentially laws be the most important factor over human behavior, you could actually have insurers who end up being the driving force. So who knows, like there's been talking about, you know, insurers bearing the most risk from say climate change, for example, and so perhaps they, more than anyone else, have the incentive to uh push businesses and individuals towards climate friendly activities.

Exactly alright, So we managed to veer from piracy to bitcoin to insurers as a global political forces. So um, that was fun. That was a successful podcast, I would say. I would say I would say that's the mark of a successful episode. Excellent. Thanks for listening everyone to the latest episode of Odd Lots. I'm Joe wi Isn't though you can follow me on Twitter at the stall Wart, and I'm Tracy Halloway. I'm on Twitter at Tracy Alloway. Thanks for listening. Are are two? Are well and keep