Post-war risk: the war in Iraq turned the spotlight on kidnap and ransom coverage. However, experts say that the risk is just as great in times of peace

Risk & Insurance, July, 2003 by Lori Widmer

Ironically, the safest place on the planet today may be Iraq. The presence of U.S. military troops and the fall of the government leave little threat of a kidnap situation, experts say. The likelihood of a kidnapping for ransom in Iraq is quite low at the moment.

The bigger threats, these experts say, remain in countries where poverty exacerbates the appeal of kidnap or in areas where guerrilla activity runs unchecked. This fuels the need for kidnap and ransom coverage, and for expatriates to be trained in how to spot trouble and get out of it.

According to St. Paul Cos. in a written statement, the demand for kidnap and ransom coverage among U.S. companies will grow by an estimated 20 percent annually. Reliable statistics are not available, but one conservative estimate has the total number of kidnappings for ransom worldwide at 12,000 annually. U.S. State Department statistics report that of all facilities U.S. and foreign attacked by terrorists between 1995 and 2000, 67 percent were business related. Kidnappings themselves, according to MG, have risen 70 percent between 1991 and 1999. Kidnapping has become a popular international sport.

"It's a business," says James Dwane, senior vice president in MG Worldsource's crisis management division. "It's just like drugs. They don't sell drugs to take them. They sell them for revenue." The same with kidnap victims, he says. Most kidnappings are driven by dollars, not the thirst for terrorism or killing. Nearly all victims are released.

Yet sometimes the victims are not released. When Wall Street Journal reporter Daniel Pearl was kidnapped in 2002 and eventually killed by his Pakistani captors, the motives behind the kidnap differed from the majority of kidnappings that occur worldwide. It was motivated by politics. That scenario, experts say, is the toughest one to negotiate. Yet in nearly 10 percent of all kidnappings, victims are killed. The presence of an experienced negotiator reduces that number significantly, according to experts.

Confidential Coverage

One of the caveats of a kidnap and ransom coverage product is that the existence of coverage is not to be revealed. "There is a confidentiality provision in the policy that says if you disclose the existence of the policy then it could become null and void," says Dwane. "I don't know an insurance company in the world that would deny coverage if someone, under kidnap duress, in some way discloses that information. The company is not going to cancel them if the kidnappers, after the victims have been captured, discover there's a policy in place.

Clearly, however, if you're walking around the streets of Latin America telling everyone you have a K&R policy, guess who the next person kidnapped is going to be?"

David Lattin, director of industry practices with The St. Paul Cos. in St. Paul, Minn., agrees. "The entire industry is consistent on this--the divulging of the existence of the policy can affect the ability to place a claim, for obvious reasons. If one were to shout out, 'Not to worry--we have insurance,' that would be a pretty plain negotiation. Just give them everything you have at that point."

In most cases, that won't happen because the employee has no idea the policy exists. "The insurer and the corporations involved understand that confidentiality is required with these policies," says Lattin. "In fact, in employee training the employee would get the training, but not know about the policy's existence. One never mentions that. It's done that way by most companies."

Who's At Risk?

Contrary to popular opinion, it's not the large corporations that are hit hardest by kidnap and extortion. "That's a misconception," says Lattin. "People tend to think the gold-plated international companies are more at risk than the smaller companies when in fact statistically, according to Lloyd's of London, it's much more likely to be the subcontracting company engaged in an overseas project for a bigger company that gets victimized. Statistically, more smaller companies are victimized by this crime than the big boys."

Dwane agrees, but adds, "brand name is certainly more susceptible because of the capital it projects. For example, if you're walking through the streets of Bogota and you've got on a Coca-Cola USA shirt, that's not safe."

Dwane says his group gives briefings to employees on how to dress in foreign countries. There is a definite way not to dress, he says. "Some of the consultants call it the 'expatriate uniform'--the khaki pants, the polo shirt and the blue blazer. You're just labeling yourself."

Ideally, companies are much better off if their employees understand how to avoid a kidnapping situation. Common sense rules apply--don't show up wearing a Rolodex or carrying a Coach briefcase, says Dwane.

Be aware of the "hot spots" in each city that are known to be American attractions. Each city has places that Americans frequent, says Dwane. Vary your route occasionally. Try to blend in, not stick out.

The Product

A typical kidnap and ransom product would have an insuring agreement with a defined set of insuring events--most common are kidnap, ransom, extortion, wrongful detention and hijacking. Covered losses include ransom money, the in-transit delivery coverage (should anything go wrong with the delivery of the money), and various expenses associated with managing the situation, such as unlimited consultant costs, negotiation costs, and judgment settlements and defense costs in the event of a lawsuit.