Kidnap, Ransom and Extortion (KRE) insurance has become a coverage shaped both by intense carrier competition and a growing global need for it among corporations and the wealthy.

Kidnapping and extortion has become an industry of highly organized, often technologically advanced criminal groups looking to make a statement, a quick buck—or both.

Data suggests kidnappings may have risen 10 percent from levels in 2010 to more than 30,000 recorded incidents. Traditionally high-risk areas remain troublesome, while new hotspots are constantly emerging.

Experts say even these sobering statistics belie the true enormity of the problem. Perhaps as many as 80 percent of incidents go unreported, or are misreported, for a variety of reasons—from fear of retaliation to the fact that in some cases, local authorities may be in on the plot.

The objective and measure of KRE success is consistent throughout the insurance industry: the successful return of a detainee, alive.

And the mostly secretive process of achieving that goal relies upon a delicate formula of knowledge, patience and force.

DEMAND UP, BUT FIERCE COMPETITION KEEPS PRICES IN CHECK

Primary players in the KRE insurance market are experiencing upticks in submissions approaching 30 percent in some cases, according to broker Burns & Wilcox. “They also report continually increasing written-premium volumes,” says Jeff Bogen, Professional Liability underwriter and broker for B&W.

Executives say news-media reports at home and abroad have brought the dangers—and subsequently, the need for insurance coverage—to the forefront.

“We hear about [an incident] every day now on the news: abductions, piracy, terrorism, citizens trapped in a country,” says Carl Swanson, CNA's assistant vice president of underwriting and head of global contingency risk.

“Media coverage has definitely added to the increase in interest,” agrees Greg Bangs, a vice president at Chubb and worldwide product manager for crime, kidnap and ransom, and extortion. “But you can also look at how businesses are operating these days, with more employees being asked to relocate or travel.”

As more and more companies—as well as some high-net-worth individuals—become aware of the coverage, more insurers are improving products or looking to get into the niche. Carrier competition is fierce, which is keeping pricing attractive for buyers even as demand rises.

“With more products available to consumers and more insurance companies wanting in on the action, pricing has become very competitive,” says Bogen. “One-million-dollar limits for $1,000 annual premium can easily be had.”

Alex Pittignano, V.P. of crisis management at Starr Cos., says many of the submissions the insurer sees are from first-time purchasers.

Indeed, while KRE coverage has been on the radar screen of multinational, Fortune 1000 companies for years, the increasingly global economy has inspired a demand among a much larger swath of businesses.

CNA, in fact, just launched a new KRE product, targeted squarely at middle-market businesses beginning to globalize.

Bangs says as more employees are stationed in foreign countries, their safety and well-being (as well as litigation avoidance) are “definitely factors in the product purchase.”

What is known as “duty of care” for expatriate and local employees has been a big push in KRE products' increased popularity as employers look to avoid lawsuits, notes Tracie Thompson, global head of kidnap and ransom for Chartis.

WHAT'S COVERED?

Policies, issued on an indemnity basis, can cover more than the named insured. An incomplete list includes spouses, children, stepchildren, guests in the home and employees of the household. Standard policies cover kidnap, ransom, hijacking, wrongful detention, extortion, legal liability and related expenses.

These policies are often used by insureds as collateral with banks to raise cash with which to pay ransoms.

While policies in the past were structured mainly to address the needs of large, for-profit multinationals, offerings can now specifically be tailored for such entities as educational institutions and hospitals (for abducted employees or students); or for churches (to cover missionaries).

The risks that may not be included in a standard policy (disappearance, piracy or political evacuation, for example) can be tacked on via endorsements.

Coverage can also be held by businesses for protection against cyber extortion—a threat that an entire computer system will be hacked to cause a disruption or to steal a trade secret if a ransom is not paid. A threat of product contamination is another possibility that insurance can cover.

WHEN THE CALL COMES IN…

Carriers have aligned themselves with private firms—staffed with former intelligence officers and personnel trained in hostage rescue—that are ready to advise on a litany of KRE-related situations, gauge the legitimacy of threats and respond directly to a crisis.

“When the client is aware something has happened, they call an incident hot-line number that gives them instant access to consultants who have personnel who can be deployed to a situation immediately,” says Thompson of Chartis, which uses consultancy firm NYA International.

The first few hours after a kidnapping or extortion notice are critical, which is why insurers say they remain out of the way and allow consultants to work “behind closed doors,” says Thompson.

“The role of the consultant is to work on behalf of the insured,” explains Richard Bessinger, senior vice president of Starr Indemnity & Liability Co. “The consultants are there to provide advice and guidance to insureds in extremely emotional times, to allow the insured to make informed decisions.”

The strategy here is to give the insured “no disincentive when using [crisis-management services],” adds Pittignano. There is no deductible for use of the consultant, and no cap on the consultancy's cost during an insured event.

Thompson says the consultants handle the delicate task of negotiations, with enough knowledge of when (and what) to pay in order to deter the kidnappers or extortionists from striking again.

These consultants' services are the driving force behind the purchase of many KRE policies, Bessinger says.

“They come in immediately,” adds Bangs of Chubb, which uses The Ackerman Group as a consultant. “They know the local language. They negotiate demands. They figure out a way to get your employee out of a situation.”

One recent real-world example: red24—a global security-assistance and crisis-response firm that counts CNA among its clients—helped 185 people to get out of Egypt during political unrest there last year, according to the firm's Web site.

In some instances, this involved simple transportation. In others, “more sophisticated security operations” were needed, red24 notes, discreetly.

RISK AWARENESS PLAYS PIVOTAL ROLE

Preventative measures provided by these private consultancies make KRE “more than a traditional risk transfer,” says Chartis' Thompson. “Our specialists can help our clients become more proactive.”

For instance, shipmasters contact a consultant every three hours to coordinate routes in real time, says Pittignano: “The role of consultants is so important. Informed clients can do so much to avoid potential problems by working with consultants.”

Employees can be briefed before they travel or relocate to learn caution measures of their own, such as never establishing an identifiable routine.

“[Criminals] can take a lot of time getting to know you once you're targeted,” says Bangs, who relates a story about a man who was kidnapped after his abductors watched him until they learned his habits.

“He'd back out of the driveway in his car each morning to get his [delivered] newspaper,” notes Bangs. “If the paper was on the driver's side, he wouldn't get out—he just opened the door and reached down.

“The guys watching him picked up on it and moved the newspaper to the passenger side,” he continues. “When he got out to get it, they took him.”

HOTSPOTS MULTIPLY ABROAD

The evolution in coverage has been paralleled by the proliferation of KRE hotspots.

A decade ago, Latin America accounted for a large majority—maybe as much as 90 percent—of all reported KRE incidents. But today, factors such as political and economic unrest have led to a high frequency of kidnap-and-ransom incidents in territories around the world.

Lee Niblett, head of corporate intelligence at red24, says the Middle East and North Africa have seen significant growth in KRE incidents: “Conflict in Afghanistan and Iraq has created significant instability, providing an ideal environment for both criminal and insurgent groups to conduct kidnapping operations.”

There has also been an escalation in KRE incidents in Yemen and Somalia, Niblett reports.

Nigeria is one of the world's highest-risk areas, and incidents have increased in Pakistan and India. The threat also exists in the Philippines and China.

“As kidnapping proliferates, both in terms of sheer numbers and geographical diversity, target patterns are also changing,” adds Niblett.

Organized KRE gangs, he explains, stay on top of trends. They've studied their targets to determine which are most likely to end in a quick ransom payment—which is one main reason why carriers, brokers and buyers remain adamantly mum on whether or not a specific organization has the coverage.

“The existence of a policy must be kept confidential as much as possible,” Bogen explains. “This helps avoid staged/collusive situations which are obviously not covered. A policy worth its weight will request as much confidentiality as possible but not void cover if some people know about it. Ideally, those who need to know, do know. But no one else does.”

While one might expect an organization's leaders to be the top targets, that's actually not the case. Mid-level managers, government officials, project workers and lower-level business personnel find themselves victimized more often, says Niblett. While most victims are local nationals, he adds, “foreign nationals are not immune from the threat.”

Special Reports /

KRE Insurance Adapts to Increasingly Global World, Sophisticated Criminals

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