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Kidnap and Ransom Insurance
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Kidnap and ransom insurance (or "K&R" as it is known) provides protection from the financial consequences of a kidnapping and extortion attempt. It is often felt an important coverage for companies sending executives abroad to travel or live, but is becoming more important for US companies.
K&R insurance provides financial and other resources to aid corporations and the families of employees in resolving a ransom demand in a kidnapping. Most policies also provide financial resources required to resolve an extortion threat against corporate assets or products.
Exposure
Kidnappings and extortion are on the upswing. The highest risk area in the world is South America and Columbia in particular. Columbia has the record for the most kidnappings and the highest ransom demands. For many criminals kidnapping is a business, and kidnappings in Columbia are often professional, well-planned operations lasting considerable periods of time.
The US has a much lower level of kidnappings than overseas high-risk areas, but they do occur. US incidents are rarely publicized by those involved because corporations and individuals want to avoid any repeat attacks or threats. Extortion against corporate assets or products also occurs in the US, and is also on the upswing. Despite the increase in US situations, effective law enforcement, stiff penalties and strong security measures continue to keep the US safer than other countries.
The increasing sophistication of corporate security systems may be contributing to an increase in these types of crimes. One theory is that the increased sophistication of corporate security systems is much tougher to crack, and that kidnapping is an effective way to obtain the knowledge to complete the crime.
A government handbook for employees residing overseas has the following description of the need for K&R insurance:
Unfortunately, kidnapping has become a major security issue in several countries outside of North America. In the last several years, statistics have shown an escalation of incidents in Italy, the Philippines, Columbia, Pakistan, and Brazil. Obviously, no one plans on being victimized by this sort of criminal activity. But when it does occur, the financial fallout can be overwhelming to the families involved. Consider the following scenario: An executive in a foreign country leaving his office is suddenly confronted by three men, each with firearms. He is forced into a vehicle, which quickly flees from the scene. A ransom for his release is set at $1,000,000. The ransom is paid in full and he is released within 30 days. Fortunately for his family, this gentlemen had an insurance policy that specifically covered such an occurrence. As a result, neither he nor his family suffered any significant financial loss as a result of this criminal act.
Without diluting the importance of [coverage] factors, the primary consideration for any "Kidnap and Ransom" policy still lies in the expertise that will be utilized for hostage retrieval. The negotiating team is probably more important than the policy. The policy should provide for both an experienced negotiator and the facilities necessary to ensure that the hostage is returned unharmed.
Kidnap & Ransom Insurance
The primary purpose of a K&R policy is to provide financial resources to cover ransom and extortion demands. Most policies come with security services (see below) to help in the event of a covered situation. The policy may also cover additional expenses such as travel-related costs, and money lost in transit.
Many large companies and a number of smaller companies are beginning to purchase this coverage. Pricing and limits are dependent upon the size of the company and the location of its employees overseas. South America is one of the highest risk areas in the world, and companies with employees living or travelling there regularly pay significantly higher rates. However, pricing is inexpensive for most situations.
Coverage is dependent upon the specific circumstances of the insured corporate entity, but is typically provided broadly to cover family members as well as employees. Coverage territory can be worldwide or a defined geographic area. Since certain areas are higher risks than others are, pricing and terms are greatly impacted by the location of company employees.
Pricing factors can include:
- Company size
- Coverage terms including limits and deductibles
- Location of the company's employees
- Previous incidents
- The visibility and security of the company
Purchasing K&R insurance is easy, but the process must be confidential. The existence of the coverage could create a target where none existed, and could also trigger fraudulent claims. The application process is straightforward for the simple account, with a short application resulting in a proposal. However, companies with unique situations or significant numbers of employees in higher risk territories require more thorough underwriting.
Security Services
Most K&R insurers package specialized security services along with the insurance coverage to help companies and families facing a demand. Experts in kidnap and extortion negotiation staff these security services, and these experts provide immediate response to advise participants on strategy and outcomes. This service can be critical in bringing the situation to a safe resolution. Some risk managers buy K&R insurance as much for the special expertise as for the financial resources.
Claims
The typical claim would involve an abduction of a company employee or an employee's family member. Some examples are:
- A medical-products company executive travelling in South America was abducted and his driver killed. After two months the executive was released when a $7 million ransom was paid. K&R insurance paid the ransom.
- An executive in the mid-western US was abducted at gunpoint from a corporate parking lot. The ransom demand was $3 million.
- A local businessman was abducted and released after his K&R insurance paid $4 million in ransom.
- A former employee of a company, recently fired, threatened a supervisor with violence and injury if a payment was not made.
Get K&R Insurance
Mercator Risk Services Inc. ("Mercator" or "Mercator Risk Services") provides Kidnap & Ransom ("K&R") insurance coverage for various types of organizations. Please let us know your clients needs and we will provide you with information and assistance with your particular situation or account, and K&R coverage.
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