K-R Insurance: An Increasing Necessity

K-R Insurance: An Increasing Necessity

By Mark E. Ruquet

NU Online News Service, Dec. 21, 10:34 a.m. EST?The cost to companies for kidnap-and-ransom insurance is doubling, but it still makes economic sense, a brokerage firm is advising .[@@]

Willis executives provided this counsel during a Webcast conference last week on how insurance can help mitigate some of a corporation's concerns about kidnapping and terrorism.

Lisa M. Zanotelli, executive director of Willis' special contingency risks (SCR) practice, said that increasingly, kidnapping is used for political purposes, notably in the Middle-East, but kidnapping for ransom remains a major, and growing, purpose of these episodes, especially in South and Central America.

Kidnapping is becoming a favorite tool of political groups, Ms. Zanotelli noted, because it requires little equipment or expense upfront and is found to be a "successful way to pressure interests."

Economic kidnapping, especially in Iraq, usually involves groups who attempt to collect ransom. When they fail, the individual is sold-up to radical groups, who then use their captives to gain publicity for the message of their cause.

The acts are disruptive and costly for corporations trying to do business overseas.

A company's ability to help employees overseas in such a crisis can affect the morale of the whole operation and "impact the company's reputation if the incident is not handled effectively," she said.

From a corporate governance standpoint, she continued, it is expected companies will do their utmost to protect and inform their employees overseas.

There are solutions to these issues, the executives said.

Derek A. Rogers, divisional director, Willis' SCR practice, explained that there are many economic and program advantages for a corporation purchasing kidnapping-and-ransom insurance, including hiring consultants to provide the programs and recommend procedures to help protect employees overseas. He noted that the costs of consultants can run $3,000 per day, and insurance can help corporations cover these expenses.

The policy can extend to business interruption coverage in cases where a covered employee's kidnapping leads to disruptions in the corporation's operations, Mr. Rogers said.

An insurance policy should cover myriad risks including evacuation and repatriation coverage, he advised.

The cost of the insurance is "significant," Mr. Rogers noted, but he said it is calculated as a cost of doing business in those parts of the world where these crimes are common. He said companies renewing their policies in Iraq and the surrounding area this past year saw increases of 100 percent.

"This coverage is potentially very versatile and the majority of policies out there do not address all of these issues," he noted. "It is important to do a complete review of the overall program" to ensure it fits in with the corporation's overall risk management needs.

He cautioned that when it comes to choosing consultants for such a life and death situation, they should be partnered with the carrier.

Ms. Zanotelli noted there are a number of questions that can be asked about the ability of the protection-consulting firm to do its job, including if they have had any victims and if that loss resulted in litigation.

There are only a few companies that offer this coverage. They include Hiscox, Lloyd's, AIG, St. Paul, Chubb, and a few others.

For overseas corporations, Kirk V. Metcalf, chief executive officer of Willis' Washington, D.C. office, discussed Defense Base Act coverage, a workers' compensation program for those working for the government.

He noted that the war in Iraq has raised questions about the extent of the coverage, including if it covers a contractor only during the hours of his or her employment or during a 24-hour period. There are also questions concerning war hazard endorsement that have yet to be tested.

The entire presentation is available over the Web at www.willis.com/Extras/webcasts.aspx.