Home > Property & Casualty > Kidnap and ransom policies become necessary as demand figures cracks $1 billion mark

Kidnap and ransom policies become necessary as demand figures cracks $1 billion mark

kidnap_ransomCrimes that involve kidnap and ransom have become a lucrative and prosperous practice with the rise of the Islamic State in the Middle East, and piracy in the Gulf of Guinea off the west coast of Africa. The scale of for these crimes can be massive, with media reports estimating global ransom demand figures above $1 billion per year. Crisis response firm Olive Group estimates that there are about 100,000 kidnappings every year, 40 percent of which involve a ransom demand.

Experts claim that most kidnappings go unreported because victims and their families fear retribution, or have been warned not to do so by the authorities or company responsible for securing the release. Chuck Regini, director of global response at crisis response company Unity Resources Group, states that approximately one in 10 kidnappings actually gets reported. He also warned that there has been a noticeable increase in the number of incidents over the past 10 years. In particular, he has seen a rise in kidnappings of foreigners working overseas this year across all business sectors and socioeconomic groups. As a result of this spike, premiums written in this area have risen, and at least 75 percent of Fortune 500 companies now hold Kidnap & Ransom (K&R) policies according to industry estimates.

Exploration firms, non-governmental medical and humanitarian aid organizations, and journalists operating in the world’s harshest and most dangerous environments are among the highest at risk for kidnappings. In terms of the riskiest geographic locations, kidnap and ransom was traditionally more common in Latin America, but has now spread to Africa, the Middle East, and areas of Asia-Pacific.

With regards to underwriting, Mexico remains the No. 1 hot spot for kidnap and ransom crimes, followed by Nigeria, Libya, Syria and Pakistan. Local managers face the greatest risk in the Western Hemisphere, while the opposite is true of the Eastern Hemisphere. There, the locals have less exposure and the expatriate is the one most at threat. Kidnappers in this region of the world often perceive that Westerners are very wealthy, and that they will be able to extort large sums of money out of them.

Motivation for these crimes usually stems from political instability, poverty, and/or corruption, which provides an environment for organized criminal groups and armed gangs to operate in. Another key driver has been the global credit crunch. The fact that it has been so easy to access a plethora of information online about who is being targeted and the ransom sums being demanded have also resulted in various copycat crimes.

A standard K&R insurance policy covers kidnap and ransom, extortion, and detention. The value of any ransom to be paid is included, as well as any expenses incurred during the ordeal. The policy will also cover companies for litigation costs that do not come under the coverages general liability or workers’ compensation insurance. It is important to note, however, that business interruption is often not included in a standard policy.

A few preventative steps that companies can take to protect themselves and their employees against these crimes are to assess and comprehend the environment in which employees are working, and to develop appropriate contingency plans. In addition, company employees should keep a low profile, dress down, remove all expensive jewelry, and make travel arrangements in advance using their own private transport.


About the Author

Marcus Janus is a Vice President in WGA’s Executive Risk Practice. He specializes in assisting organizations and their executives with protection and advocacy for their exposures to Directors’ & Officers’ Liability, Employment Practices Liability, Fiduciary Liability, Professional Liability, Crime, and Kidnap & Ransom.

617.646.0258 | MJanus@wgains.com | Connect with Marcus on LinkedIn |
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