Negotiate K&R Policies

On Jan. 16, 2013, militants attacked a BP gas plant at InAmenas, Algeria. They took foreign and Algerian plant employeeshostage and strapped explosives to them. It is likely they wereplanning to blow up the gas facility in an act of terrorism,possibly in protest against French involvement in Mali.

Nearly 800 hostages managed to escape with their lives, but atleast 38 others, including three Americans, were executed by theircaptors or accidentally killed as a result of a helicopter attacklaunched by the Algerian government. The siege ended after a finalmilitary raid of the plant 4 days later.

Countries destabilized by war, unrest or revolution and thosecountries that have not increased security to match growing foreigninvestments are the most common hotspots year-to-year. ControlRisks' 2013 RiskMap reports that kidnapping-for-ransom in theMiddle East rose from a 4 percent in global numbers in 2008 to 19percent in 2012. Risks also remain substantial in Africa and LatinAmerica. The event at In Amenas and global trends illustrate theincreasing relevance of kidnap & ransom (K&R)insurance.

Read the sidebar “Negotiating theNon-Negotiable.”

RiskMap also reported that kidnapping-for-ransom is increasingin global scope. The true number of kidnappings is not known; theyare often unreported due to fear of retribution or corruption ofofficials.

Lloyd's of London first introduced this coverage to the marketby in 1932 in response to the famous kidnapping of the 20-month-oldchild of aviator Charles Lindbergh. The traditional K&R marketbase included large companies and high net-worth individuals.

Today, the market has increased to include media personnel,members of the entertainment industry, educational institutions,hospitals and houses of worship. “At this point, there is not asingle type of client I have not seen seek out a K&R policy,”said Jeremy Lang, senior vice president and manager of U.S. Kidnapand Ransom for Hiscox USA. “However, there is still a largepercentage of the buying public that is unaware of how a K&Rpolicy functions, how a response firm works or the benefits of apolicy.”

Read the sidebar “K&R Trends in 2013.”

Some of the highest-profile kidnappings in 2012 involved membersof the media. Richard Engel, NBC's chief foreign correspondent, andmembers of his crew disappeared after crossing Turkey's border intothe northwestern region of Syria in mid-December. Kidnappers askedfor a news blackout about the incident and there was no request forransom. The ordeal ended when the kidnappers, who were moving theirvictims to a new location, ran into a Syrian rebel checkpoint.

Shippers and oil companies frequently deal with kidnapping oftheir sailors when they are traveling around the African coast.Somali pirate activity, once thriving, has significantly declinedin the past 2 years but still poses a real threat to cargoships.

Not all K&R needs are so large-scale. Houses of worshipoften purchase the coverage for humanitarian efforts in poorernations, where crime is generally motivated by poverty, gangactivity and unstable or corrupt governments. Houses of worshiplocated in hostile social climates can be protected from threats ofharm to lead members or damage to property.

Hospitals and academic institutions require the coverage toprotect children or weak and vulnerable patients from abductionfrom their premises. Universities may offer coverage to studentstudying abroad, and some policies also cover on-campus violence.Individuals traveling for pleasure can purchase coverage for peaceof mind.

“There are two misconceptions about K&R: A) that it is veryexpensive and B) that only people traveling overseas need it,” Langsaid. Large companies like BP with operations in heavy terroristareas demonstrate obvious need for the product, but small andmid-sized businesses are not immune from being targeted by militantgroups, receiving threats or being in the wrong place at the wrongtime during an uprising and having to quickly leave an unstablelocation.

Common Claims

“K&R policies typically cover a fairly consistent set ofincidents: kidnapping, corporate extortion, detention andhijacking,” Tom Dunlap, assistant vice president of LibertyInternational Underwriters' Global Crisis Management said. Somepolicies also offer coverage for child abductions, express kidnapsand threats of violence, murder or the release of confidentialinformation. Typical K&R coverage includes:

Reimbursement of ransom monies, consultant fees andexpenses
Coverage for legal costs, compensatory damages and financialloss to the victim
Salary continuation
Medical and hospitalization costs
Temporary protection of insured persons
Business interruption
Evacuation and restoration coverage
Recall in the event of product extortion.

Lang said agents should consider the response firm associatedwith the coverage when writing a K&R policy. Response firms areteams of experts who can provide policyholders with guidance andsupport in order to safely resolve a
crisis situation.

Response firms deploy experts to the scene of an incident foron-site assistance. Experts act as liaisons with governmentofficials or members of law enforcement. Part of K&R isdetermining if a threat is viable—response firms know what damagevarious gangs, rebel groups, or unknown individuals may or may notbe capable of causing.

K&R is at its strongest when it can be tailored to aclient's unique needs. Does the client travel? If so, does he bringfamily members or other guests along? Does the business haveoffices overseas? Employers could expose themselves to lawsuitsfrom employees if they do not take care to protect them from risksinherent in the jobs they are required to perform.

According to the Control Risks business travel report, 54percent of U.S. business travelers carry no specific contact phonenumber for emergencies abroad. In smaller firms, that figure swellsto 69 percent. Having a response firm available at any time of theday or night will assist employees in an emergency.

“The most common scenario involves a planned abduction anddemand for ransom,” Dunlap said. Kidnappers will often observe thepatterns of a family or business owner for several weeks until apoint for abduction becomes clear. “Less frequently, a victim canbe taken in order to harass a business or the government. This isusually by an insurgency or advocacy group.” Dunlap believes mostscenarios have a solution, be it appealing to influential communitymembers, using public pressure, or appealing to the kidnapper'sgreed.

Outright denial of a claim is highly unusually and mayoccasionally occur in instances where the victim is an individualfor whom the insured declined coverage. “This is why theinvolvement of the response consultant is important,” Dunlap said,adding that the consultant can help evaluate the situation andconfirm the payment amount. Final loss may be negotiated, just likeit would be for an auto or
D&O claim.

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