On Jan. 16, 2013, militants attacked a BP gas plant at In Amenas, Algeria. They took foreign and Algerian plant employees hostage and strapped explosives to them. It is likely they were planning to blow up the gas facility in an act of terrorism, possibly in protest against French involvement in Mali.
Nearly 800 hostages managed to escape with their lives, but at least 38 others, including three Americans, were executed by their captors or accidentally killed as a result of a helicopter attack launched by the Algerian government. The siege ended after a final military raid of the plant 4 days later.
Countries destabilized by war, unrest or revolution and those countries that have not increased security to match growing foreign investments are the most common hotspots year-to-year. Control Risks' 2013 RiskMap reports that kidnapping-for-ransom in the Middle East rose from a 4 percent in global numbers in 2008 to 19 percent in 2012. Risks also remain substantial in Africa and Latin America. The event at In Amenas and global trends illustrate the increasing relevance of kidnap & ransom (K&R) insurance.
RiskMap also reported that kidnapping-for-ransom is increasing in global scope. The true number of kidnappings is not known; they are often unreported due to fear of retribution or corruption of officials.
Lloyd's of London first introduced this coverage to the market by in 1932 in response to the famous kidnapping of the 20-month-old child of aviator Charles Lindbergh. The traditional K&R market base included large companies and high net-worth individuals.
Today, the market has increased to include media personnel, members of the entertainment industry, educational institutions, hospitals and houses of worship. “At this point, there is not a single type of client I have not seen seek out a K&R policy,” said Jeremy Lang, senior vice president and manager of U.S. Kidnap and Ransom for Hiscox USA. “However, there is still a large percentage of the buying public that is unaware of how a K&R policy functions, how a response firm works or the benefits of a policy.”
Some of the highest-profile kidnappings in 2012 involved members of the media. Richard Engel, NBC's chief foreign correspondent, and members of his crew disappeared after crossing Turkey's border into the northwestern region of Syria in mid-December. Kidnappers asked for a news blackout about the incident and there was no request for ransom. The ordeal ended when the kidnappers, who were moving their victims to a new location, ran into a Syrian rebel checkpoint.
Shippers and oil companies frequently deal with kidnapping of their sailors when they are traveling around the African coast. Somali pirate activity, once thriving, has significantly declined in the past 2 years but still poses a real threat to cargo ships.
Not all K&R needs are so large-scale. Houses of worship often purchase the coverage for humanitarian efforts in poorer nations, where crime is generally motivated by poverty, gang activity and unstable or corrupt governments. Houses of worship located in hostile social climates can be protected from threats of harm to lead members or damage to property.
Hospitals and academic institutions require the coverage to protect children or weak and vulnerable patients from abduction from their premises. Universities may offer coverage to student studying abroad, and some policies also cover on-campus violence. Individuals traveling for pleasure can purchase coverage for peace of mind.
“There are two misconceptions about K&R: A) that it is very expensive and B) that only people traveling overseas need it,” Lang said. Large companies like BP with operations in heavy terrorist areas demonstrate obvious need for the product, but small and mid-sized businesses are not immune from being targeted by militant groups, receiving threats or being in the wrong place at the wrong time during an uprising and having to quickly leave an unstable location.
Common Claims
“K&R policies typically cover a fairly consistent set of incidents: kidnapping, corporate extortion, detention and hijacking,” Tom Dunlap, assistant vice president of Liberty International Underwriters' Global Crisis Management said. Some policies also offer coverage for child abductions, express kidnaps and threats of violence, murder or the release of confidential information. Typical K&R coverage includes:
- Reimbursement of ransom monies, consultant fees and expenses
- Coverage for legal costs, compensatory damages and financial loss to the victim
- Salary continuation
- Medical and hospitalization costs
- Temporary protection of insured persons
- Business interruption
- Evacuation and restoration coverage
- Recall in the event of product extortion.
Lang said agents should consider the response firm associated with the coverage when writing a K&R policy. Response firms are teams of experts who can provide policyholders with guidance and support in order to safely resolve a
crisis situation.
Related: Read the article “HCC Global Adds International K&R Product.”
Response firms deploy experts to the scene of an incident for on-site assistance. Experts act as liaisons with government officials or members of law enforcement. Part of K&R is determining if a threat is viable—response firms know what damage various gangs, rebel groups, or unknown individuals may or may not be capable of causing.K&R is at its strongest when it can be tailored to a client's unique needs. Does the client travel? If so, does he bring family members or other guests along? Does the business have offices overseas? Employers could expose themselves to lawsuits from employees if they do not take care to protect them from risks inherent in the jobs they are required to perform.
According to the Control Risks business travel report, 54 percent of U.S. business travelers carry no specific contact phone number for emergencies abroad. In smaller firms, that figure swells to 69 percent. Having a response firm available at any time of the day or night will assist employees in an emergency.
Outright denial of a claim is highly unusually and may occasionally occur in instances where the victim is an individual for whom the insured declined coverage. “This is why the involvement of the response consultant is important,” Dunlap said, adding that the consultant can help evaluate the situation and confirm the payment amount. Final loss may be negotiated, just like it would be for an auto or
D&O claim.
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