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

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R&I Profile

Achieving Balance

XL Catlin’s Denise Balan stays calm and focused when faced with crisis.
By: | January 10, 2018 • 6 min read

In the high-stress scenario of kidnap or ransom, the first image that comes to mind isn’t necessarily a yoga mat — at least, not for most.

But Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin, who practices yoga every day, would swear by it.

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“I looked at these opposing aspects of my life,” she said. “Yoga is about focus, balance, clarity of intent. In a moment of stress, how do you respond? The more clarity and calmness you maintain, the better positioned you are to provide assistance in moments of crisis.

“Nobody wants to be speaking to a frenetic person when either dealing with a dangerous situation or planning for prevention of a situation,” she added.

“There’s a poem by [Rudyard] Kipling on that,” added Balan’s colleague Ben Tucker. “What it boils down to is: If you can remain calm, you can manage through a crisis a lot better.”

Tucker, who works side by side with Balan as head of U.S. terrorism and political violence, XL Catlin, has seen how yoga influences his colleague.

“The way Denise interacts with stakeholders in this process — she is very professional and calm in the approach she takes.”

Yin and Yang

Sometimes seemingly opposite or contrary forces may actually be complementary and interconnected. In Balan’s life, yoga and K&R have become her yin and yang.

She entered the insurance world after earning a juris doctor degree and practicing law for a few years. The switch came, she said, when Balan realized she wasn’t enjoying her time as a commercial litigator.

Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

In her new role, she was able to use her legal background to manage litigation at AIG, where her transition from law to insurance took place. She started her insurance career in the environmental sector.

In a chance meeting in 2007, Balan met with crisis management underwriters who told her about kidnap and ransom products.

She was hooked.

Because of her background in yoga, Balan liked the crisis management side of the job. Being able to bring the calmness and clearness of intent she practiced during yoga into assisting clients in planning for crisis management piqued her interest.

She then joined XL Catlin in July 2013, where she built the K&R team.

As she became more immersed in her field, Balan began to notice something: The principles she learned in yoga were the same principles ex-military and ex-law enforcement practiced when called to a K&R-related crisis.

She said, “They have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.”

“K&R responders have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Many understand yoga to be, in itself, one type of meditation, but yoga actually encompasses a group of physical, mental and spiritual practices. Each is a discipline. Some forms of yoga focus on movement and breathing, others focus on posture and technique. Some yoga is meant to relax the mind and create a sense of calmness; other yoga types make participants sweat.

After having her second child and working full-time, Balan wanted to find something physical and relaxing for herself; a friend suggested yoga. During her first lesson, Balan said she was enamored with it.

“I felt like I’d done it all my life.”

She dove into the philosophy of yoga, adopting the practice into her daily routine. Every morning, whether Balan is in her Long Island home or on a business trip, she pulls out her yoga mat to practice.

“I always travel with my mat,” she said. “Daily practice is the simplest form of connection to routine to maintain my balance — physically and mentally.”

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She said the strangest place she has ever practiced was in Lisbon. She was on a very narrow balcony with a bird feeder swarming with sparrows overhead.

After years of studying and practicing, Balan is considered a yogi — someone who is highly proficient in yoga. She attends annual retreats with her yoga group, where she is able to rejuvenate, ready to tackle any K&R event when she returns.

In 2016, Balan visited Tuscany, Italy, where she learned the practice of yoga nidra, a very deep form of meditation. It’s described as the “going-to-sleep stage” — a type of yoga that brings participants to a state of consciousness between waking and sleeping.

“It awakens a different part of your brain,” Balan commented. “Orally describing it doesn’t quite do it justice. One has to practice Nidra to fully understand the effect it has on your being.”

Keeping a level head during a crisis is key in their line of business, Tucker said. He can attest to the benefit of having a yogi on board.

“I’ve seen her run table-top exercises where there is this group of people in a room and they run an exercise, a simulation of a kidnap incident. Denise is very committed to what we’re doing,” said Tucker.

“She brings that energy. She doesn’t get flustered by much.”

Building a K&R Program

When Balan joined XL Catlin, she was tasked with creating the K&R team.

Balan during a retreat in Sicily, Italy, 2017

She spent time researching and analyzing what clients would want in their K&R coverage. What stuck out most to Balan was the fact that, in these situations, the decision to purchase kidnap and ransom cover is rarely made because of desire for reimbursement of money.

“I asked why people buy this type of coverage. The answer was for the security responders,” she said.

“These are the people who sit with the family. They’re similar to psychologists or priests,” Balan further explained. “Corporations can afford to pay ransom. They buy [K&R] because it gives them access to these trained and dedicated professionals who not only provide negotiation advice, but actually sit with a victim’s family, engaging deep levels of emotional investment.”

“I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Balan described these responders as people having total clarity of purpose, setting their intentions to resolve a crisis — a practice at the very heart of yoga. She knew XL Catlin’s new kidnap program would put stock in their responders.

“I’ve worked closely with the responders to better understand what they can do for our clientele. These are the people who run into danger — warrior hearts married to dedication to our clients’ best interests.”

But K&R is more than fast-paced crisis and quick thinking; Balan also spent a good deal of time writing the K&R form and getting the company’s resources in order. This was a huge task to tackle when creating the program from the ground up.

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“A lot of my day-to-day is speaking with brokers and finding ways to enhance our product,” she said.

After a few months, she was able to hire the company’s first K&R underwriter. From there, the program has grown. It’s left her feeling professionally rewarded.

“People don’t often get that opportunity to build something up from scratch,” she said. “It’s been an amazing experience — rewarding and fun.”

“She brings groups of people together,” said Tucker. “She’s created a positive environment.”

Balan’s yogi nature extends beyond the office walls, too. Her pride and joy, she said, are her kids. And while it may seem like two large parts of her life are opposite in nature, Balan’s achieved balance through her passions.

“[Yoga] has given me the ability to see beyond only one aspect of any situation” she said. “I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]