The secret world of kidnap and ransom insurance

Clients can’t talk about it. Insurers tiptoe around the topic. But what actually happens when you’re overseas and you’ve been kidnapped?

Well, there are insurance policies for that; they’re generally bought by employers to protect certain workers. In fact, there’s a thriving kidnap and ransom (K&R) market with major insurance players like ACE, Chartis, Chubb, The Travelers, Lloyd’s, Allied World and Great American.

The K&R market boomed after the 9/11 terrorist attacks. More recent events such as the turmoil in the Middle East have added to corporate awareness – and stress. So it’s likely that many big companies that do business overseas or have employees who travel abroad will have these policies. But don’t expect them to talk about it.

“There’s one provision common to all policies – you can’t tell people you bought it,” says Kevin Guillet, head of the Fraud Advisory Practice at insurance brokerage Marsh & McLennan. Guillet represents clients in need of kidnap and ransom insurance.

The cardinal rule of kidnap and ransom insurance: The policyholder must stay tight-lipped about this coverage.

With that level of secrecy, no one knows how many of these policies are out there. The same holds true for how much these policies are worth. And if you’re asking how much insurance money gets paid to ransom-seekers, you won’t get an answer.

“It is likely there will be no reference to insurance in any story about the release of a kidnap victim,” Guillet says.

Why? Kidnapping is a business, like any other, and no one wants to give away trade secrets. Smart kidnappers in places like Colombia in South America do their research. They know who foreign executives are — their titles, the roads they travel, even where they live. And these kidnappers have been in business for years, often aided by crooked politicians and cops. Tipping off kidnappers about who has a K&R policy and how much it’s worth would paint an even bigger target on a potential victim.

Paying for protection

A basic K&R policy is relatively cheap compared with other types of insurance, such as policies that protect corporate directors and officers in the event of a lawsuit. Plus, a K&R policy generally covers not just an executive or other corporate employee, but that person’s spouse, children, grandchildren, siblings, parents, in-laws, houseguests, housekeepers, nannies — pretty much anyone who’s in the insured person’s circle.

At the low end, a K&R policy costs about $500 a year, according to insurers. But the price goes up dramatically once an insured employee travels to, lives in or works in the world’s “hot spots,” such as Venezuela, Nigeria, Mexico, India and Pakistan.

“There were 7,000 kidnappings last year in Mexico alone,” says Gregory Bangs, product manager for crime, kidnap and ransom insurance at Chubb. “Kidnap frequency is increasing, and Americans and other Westerners are targets because people believe they have money.”

Crisis management

What can an insurer do if a client is kidnapped? The policies are comprehensive, and smart clients take all the options. Covered threats include:

• The ransom demand (up to a certain dollar amount, after which the insured company or person pays out of pocket).

• Coverage for the ransom money while it’s being shuttled from one place to another.

• Legal liability for an employer whose employee may sue it after being rescued.

• Medical costs.

• Interest on money borrowed to pay the ransom.

• Public relations efforts.

• Death or mutilation. Mutilation is common in places where captors slice off a finger or ear to speed up the negotiations.

A kidnap and ransom insurance policy can cover interest on the money borrowed to pay ransom in a kidnapping case.

But the single most important item in any K&R policy is the 24-hour hotline for the “crisis response team,” the group that will swing into action to get the hostage released safely and quickly. Each major carrier has one of these teams. For example, Chubb uses The Ackerman Group, a Miami outfit run by Mike Ackerman, an ex-CIA man.

Calling the crisis response team is the first step in a kidnapping, even before the insurer is notified. The crisis response team has a virtually unlimited checkbook to get the hostage back, according to Bangs, Guillet and other insurance professionals. The insurer doesn’t even get involved in the negotiations.

Smart and strategic

Crisis response teams don’t talk about what they do, so information about specific cases is hard to come by, except in movies like “Proof of Life,” a 2000 movie about an oil company engineer who is kidnapped by South American rebels demanding a ransom for his release. The work of these teams has become easier since the U.S. government changed its policy on kidnapping after the death in 2002 of Wall Street Journal reporter Daniel Pearl, who had been held hostage in Pakistan. The U.S. government now allows companies to negotiate with kidnappers and pay ransom.

One thing is certain about these teams: You won’t see them go into a hostage situation with guns blazing. People can get killed that way, including the hostage. The advantage negotiators have is that kidnappers don’t want to kill their hostages. Victims are inventory; kidnappers want to sell their inventory, not destroy it.

The crisis response team’s true value is its members’ uneasy but bona fide “relationships” with kidnappers and their culture. The team is supposed to know who to trust, who can be bribed, how much it will cost to get the victim back and other vital details.

Patience can be an asset in these situations. In Argentina, abductions generally last two days, but in Colombia it could take a year or more for a kidnapper and a crisis response team to come to terms. In wilder parts of the world, such as the Afghanistan border, it’s difficult to find the right people to negotiate with. When kidnappers there get nervous or want to speed up negotiations, they’re liable to chop off a hostage’s finger.

“In some countries,” Guillet says of kidnapping, “this is a cottage industry.”

–Ed Leefeldt