Kidnap & Ransom

Covering a Dangerous Risk

Demand is growing for kidnap, ransom and extortion insurance, with a specific need for real-time security intelligence around the world.
By: | December 14, 2016 • 5 min read

Two people are kidnapped and held for ransom somewhere in the world every hour, according to some estimates, and approximately $1.5 billion in ransom is paid to kidnappers every year.

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Kidnap and extortion is on the rise across the globe, and demand for KRE (kidnapping, ransom and extortion) coverage is growing. Insurers are offering more comprehensive policies to meet the risk.

KRE insurance typically covers all risks related to kidnapping events. Most policies offer reimbursement for things like ransom and extortion payments, independent security consultants, crisis management, public relations campaigns, and accidental death and dismemberment.

These policies can also reach well beyond the event itself to include rehabilitation services, psychiatric care, salary replacement and relocation.

A typical cap on KRE policies is $1 million per occurrence. Due to the low claim rates, theses policies also offer cost-effective premiums relative to the risk they cover and the value they provide.

A March 2016 report by Arthur J. Gallagher & Co. said premiums range from $600 per million for companies with limited exposure to up to $3,000 per million for high-risk exposure.

Despite the growth in the KRE market, it’s hard to obtain accurate data on kidnappings and ransoms paid because many go unreported, said Christopher Arehart, senior vice president at Chubb. Organizations are unlikely to publicize the kidnapping of an employee, or even that they have a KRE policy.

While there’s no evidence to prove that having a policy could attract kidnappers or extortionists, it’s something most clients want to keep private.

“It’s a quiet product that is often sold discreetly and they hope they never have to use it. The last thing they want to do is let everyone know something like this has happened,” Arehart said. “But I can say we have seen a steady drumbeat of submissions and interest in our policy.”

A “Network of Expertise”

Dan Burns, president and CEO of specialty risk underwriters Pro Financial Services in Chicago, said customers aren’t just paying to insure the risk, they’re also buying a “network of expertise.”

Clients can often tap their KRE insurer and policy for security and legal advice, employee training and insight into local risks.

Dan Burns, president and CEO, Pro Financial Services

Dan Burns, president and CEO, Pro Financial Services

While a KRE policy can be a literal lifesaver in terms of securing the freedom of an employee, they are infrequently triggered and used more for peace of mind with employees, he said. Increasing publicity about global instability and kidnappings has more companies looking to these policies to establish a relationship with security experts.

“What you’re buying is access to a very experienced global security network that has experience and familiarity in dealing with situations that most clients have and never will encounter,” Burns said.

Arehart said that Chubb offers its KRE policyholders security advice, training and up-to-the-minute risk analysis on more than 100 countries from the Ackerman Group, an organization that specializes in crisis management, executive protection and hostage recoveries.

Paying Ransom is Illegal

“Kidnap and Ransom Insurance: At an Inflection Point,” a 2015 report by Cognizant, said the KRE market will be a $12.4 billion opportunity by 2019. Major insurers include AIG, Travelers, Hiscox and Chubb.

Cognizant noted, however, that insurers are grappling with challenges in underwriting, claims adjudication and loss control.

One issue that falls into a gray legal area is that under U.S. law, it is illegal for organizations or individuals to provide “material support or resources” to terrorists, which could be interpreted to cover ransom payments if a kidnapping is committed by a group the U.S. Department of State considers a terrorist organization.

In June 2015, President Obama said in a statement that the federal government would work closer with families to resolve hostage situations with a dedicated coordinator.

“What you’re buying is access to a very experienced global security network that has experience and familiarity in dealing with situations that most clients have and never will encounter.” — Dan Burns, president and CEO, Pro Financial Services

He reaffirmed that the government would not make ransom payments to terrorist groups, but left the door open for families to proceed without fear of government prosecution.

“In particular, I want to point out that no family of an American hostage has ever been prosecuted for paying ransom for the return of their loved ones. The last thing that we should ever do is add to a family’s pain with threats like that,” said Obama.

Neither the U.S. nor the Canadian government has ever prosecuted individuals or companies for paying ransom.

Brianna Guenther, an attorney at Burnet, Duckworth & Palmer law firm in Calgary, Alberta, said there is no definitive case law on when or if an insurance company can legally reimburse an insured for a ransom payment to a terrorist organization, although arguably there are statutes that could prohibit it.

“Based on past practice, if you end up paying to get someone back, it doesn’t seem likely that they would go after and prosecute you. But they still do have laws that give them the power to,” Guenther said.

The global legal environment isn’t any clearer. Since 2014, the U.N. Security Council has been urging countries to bar the payment of ransoms.

In November 2014, the U.K.’s Counter-Terrorism and Security Act banned the payment of ransoms by insurers. That affects all KRE policies written in the U.K.

Peter James, account executive in the global organizations division at Clements Worldwide, noted that all KRE policies only cover ransom payments on a reimbursement basis.

Evolving Criminal Tactics

KRE policies are also adapting to keep pace with evolving strategies including hoax “virtual kidnappings” and “virtual extortion.”

The Arthur J. Gallagher report identified virtual kidnapping as a “significant trend” that is increasing due to availability of data and the low cost of the crime.

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The report said that many KRE policies offer coverage for virtual kidnapping without additional endorsements.

Regardless of how these schemes use technology, Arehart of Chubb said, a KRE policy provides value.

In most cases, risk consultants can evaluate and rule out virtual kidnappings with a proof of life evaluation, he said. A properly constructed KRE policy can also respond to some ransomware events where a criminal demands money or threatens to destroy files.

“A KRE policy can really shine when it’s less about the virus coming into the system and more about the human extortionist using a computer to get information,” Arehart said.

“We’re seeing more companies carry these policies out of a sense of duty or care,” Burns of Pro Financial said. “You need to do right by your employees and having this type of coverage in place is pretty important for them.” &

Craig Guillot is a writer and photographer, based in New Orleans. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As a professor of business, Jack Hampton knows firsthand the positive impact education has on risk managers as they tackle growing risks.
By: | April 9, 2018 • 4 min read

R&I: Who is your mentor and why?

Ellen Thrower, president (retired), The College of Insurance, introduced me to the importance of insurance as a component of risk management. Further, she encouraged me to explore strategic and operational risk as foundation topics shaping the role of the modern risk manager.

Chris Mandel, former president of RIMS and Risk Manager of the Year, introduced me to the emerging area of enterprise risk management. He helped me recognize the need to align hazard, strategic, operational and financial risk into a single framework. He gave me the perspective of ERM in a high-tech environment, using USAA as a model program that later won an excellence award for innovation.

Bob Morrell, founder and former CEO of Riskonnect, showed me how technology could be applied to solving serious risk management and governance problems. He created a platform that made some of my ideas practical and extended them into a highly-successful enterprise that served risk and governance management needs of major corporations.

R&I: How did you come to work in this industry?

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From a background in corporate finance and commercial banking, I accepted the position of provost of The College of Insurance. Recognizing my limited prior knowledge in the field, I became a student of insurance and risk management leading to authorship of books on hazard and financial risk. This led to industry consulting, as well as to the development of graduate-level courses and concentrations in MBA programs.

R&I: What was your first job?

The provost position was the first job I had in the industry, after serving as dean of the Seton Hall University School of Business and founding The Princeton Consulting Group. Earlier positions were in business development with Marine Transport Lines, consulting in commercial banking and college professorships.

R&I: What have you accomplished that you are proudest of?

Creating a risk management concentration in the MBA program at Saint Peter’s, co-founding the Russian Risk Management Society (RUSRISK), and writing “Fundamentals of Enterprise Risk Management” and the “AMA Handbook of Financial Risk Management.”

A few years ago, I expanded into risk management in higher education. From 2017 into 2018, Rowman and Littlefield published my four books that address risks facing colleges and universities, professors, students and parents.

Jack Hampton, Professor of Business, St. Peter’s University

R&I: What is your favorite book or movie?

The Godfather. I see it as a story of managing risk, even as the behavior of its leading characters create risk for others.

R&I: What is your favorite drink?

Jameson’s Irish whiskey. Mixed with a little ice, it is a serious rival for Johnny Walker Gold scotch and Jack Daniel’s Tennessee whiskey.

R&I: What is the most unusual/interesting place you have ever visited?

Mount Etna, Taormina, and Agrigento, Sicily. I actually supervised an MBA program in Siracusa and learned about risk from a new perspective.

R&I: What is the riskiest activity you ever engaged in?

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Army Airborne training and jumping out of an airplane. Fortunately, I never had to do it in combat even though I served in Vietnam.

R&I: If the world has a modern hero, who is it and why?

George C. Marshall, one of the most decorated military leaders in American history, architect of the economic recovery program for Europe after World War II, and recipient of the 1953 Nobel Peace Prize. For Marshall, it was not just about winning the war. It was also about winning the peace.

R&I: What about this work do you find the most fulfilling or rewarding?

Sharing lessons with colleagues and students by writing, publishing and teaching. A professor with a knowledge of risk management does not only share lessons. The professor is also a student when MBA candidates talk about the risks they manage every day.

R&I: What is the risk management community doing right?

Sensitizing for-profit, nonprofit and governmental agencies to the exposures and complexities facing their organizations. Sometimes we focus too much on strategies that sound good but do not withstand closer examination. Risk managers help organizations make better decisions.

R&I: What could the risk management community be doing a better job of?

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Developing executive training programs to help risk managers assume C-suite positions in organizations. Insurance may be a good place to start but so is an MBA degree. The Risk and Insurance Management Society recognizes the importance of a wide range of risk knowledge. Colleges and universities need to catch up with RIMS.

R&I: What emerging commercial risk most concerns you?

Cyber risk and its impact on hazard, operational and financial strategies. A terrorist can take down a building. A cyber-criminal can take down much more.

R&I: What does your family think you do?

My family members think I’m a professor. They do not seem to be too interested in my views on risk management.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]