Bogus Pirates and a Burning Ship: Taking Insurance Fraud to the Next Level

A 2011 staged pirate attack on a Greek cargo vessel was an outlandish attempt to collect an insurance payment. These extreme fraud claims pose a legitimate threat to marine underwriters.
By: | October 16, 2019

Anyone who has ever said a dog is a man’s best friend clearly never had a dad with a fishing boat.

Boats are the most expensive consumer product on the market — some super-yachts retail as high as $500 million — with annual operating costs of up to 10% their sale value. Yet, for how much they’re worth, they are surprisingly disposable.

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Boats can be stolen, catch fire or suffer weather damage. They can also mysteriously sink in the middle of the ocean never to be seen again.

Not only do boats have a larger risk exposure than other big-ticket, insurable items, such as diamond rings or houses, but their captains are apparently more likely to commit insurance fraud.

Why? Presumably because there are few witnesses to fraud attempts out in the deep, blue unknown. Just ask Marios Iliopoulos.

The Ship That Kept on Sinking

Iliopoulos, the Greek owner of the cargo vessel Brillante Virtuoso, went as far as bribing law officials to help stage a fake pirate attack to collect a $77 million insurance payout.

The plan, unlike the translation of the ship’s name, was not incredibly virtuous or successful.

The “pirates” were Yemeni coast guards who were bribed to pose as security contractors. They approached and boarded the boat on July 6, 2011 before detonating an explosive device in the fuel purifier room. The blast started a fire that spread to the engine room and eventually the rest of the ship.

The assailants exited the ship and a U.S. Navy cruiser arrived at the scene shortly after, but the vessel was declared a total loss.

The effects of this specific fraudulent claim have outlasted its performance; but not in the way Iliopoulos had intended.

David Mockett, a top marine surveyor hired to investigate the attack, was murdered by car bomb in late July 2011, presumably for what he learned about the staged hijacking and boat fire.

Over $100 million of cargo went down with the ship, and the case occupied London’s high court for over 20 weeks.

“Six years after it was abandoned, the Brillante Virtuoso is an epithet among shipping veterans, one that reveals their industry’s capacity for lawlessness, financial complexity, and violence,” wrote Kit Chellel and Matthew Campbell for Bloomberg BusinessWeek in 2017.

Navigating a Sea of Exposure

The first documentation of marine insurance contracts date back to the mid-14th century. They were used as a way for trading merchants to repay loans to ship captains after their vessels arrived safely.

Battling complex, embellished and downright false claims is a practice as old as the exchange of goods. For marine insurers, it’s not always a fair fight. Back in 1989, after two men purposely crashed a wooden sailboat to collect the insurance payment, the Los Angles Times reported that 70% of boat-claims were fabricated, while 12% were completely fraudulent.

While there is fraud lingering in the corner of every sector, marine seems to be the most dramatic with the most room for execution (five oceans and 139.7 million square miles, to be exact).

The more at stake, it seems, the more ridiculous that execution becomes.

IUMI’s 2017 statistics showed that global cargo premiums amounted to $16 billion in premiums, and yet marine is the least profitable sector of insurance when you account for its risk exposure.

As technology has improved efficiency and made it increasingly harder to fool claims handlers, criminals are forced to get creative, making the possible aftereffects of maritime fraud a legitimate concern for underwriters.

More than any other industry, marine insurers must also work with foreign and domestic governments to meet safety, travel and trade regulations, which can present challenges and limit productivity.

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Susceptibility to fraud is part of that sea of exposure. However, the answer to the question, “How do you prevent insurance fraud?” is about as viable as the remains of Brillante Virtuoso resting on the floor of the Indian Ocean. Marine contracts rely on good faith more than any other sector.

The way to approach the question becomes, “How do you prevent insurance fraud from being successful?”

A phony pirate attack followed by a cover-up murder seems hard to outdo, but the odds of another stunt like this happening in the future is likely.

In order to prevent its success, the industry must rely on contractual framework, efficient technology, complete knowledge of risk exposure, relationships with insureds and – dare I say it – confidence in human desire to do the right thing.

If you don’t check off those boxes, who’s to stop you from reserving a circus clown for your next insurance fraud attempt? &

Emily Spennato is a staff writer with Risk & Insurance. She can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]