Personal safety fears for world’s HNWIs spark interest in K&R cover
News that the “beneficial owners” of investments held in offshore financial jurisdictions may soon be publicly named has prompted some to talk with increasing seriousness about the potential dangers this could represent for wealthy individuals living in countries in which kidnappings routinely occur.
At the same time, growing inequality around the world between rich and poor is also seen as raising kidnapping risk levels – not just for wealthy people in certain countries, but also for employees of multi-national companies or organisations.
Welcome to the dangerous world of 2016. Wars and sectarian conflict in the Middle East and Africa, plus widening gaps between the haves and have nots throughout Africa, South America and parts of Asia, have meant more crime – including kidnappings, piracy and extortion. Much of it is said to take place with little or no media coverage (see box, below right).
In 2014, the International New York Times said ransom had become Al Qaeda’s “cash cow”, earning “at least US$125m in revenue from kidnappings since 2009, of which US$66m [had been paid] in the past year”.
This is where crisis management companies, and insurers offering kidnap and ransom cover, can play an important, if not critical, role, according to people who advise those living and working in such danger zones.
These crisis management experts work – often behind the scenes – in ensuring that kidnapping or piracy victims are released alive, or that a threat of extortion is removed.
Their crisis managers and respond consultants, those who are familiar with such businesses say, can help with anything from a single employee going missing after a night out, to the mass evacuation of a whole workforce from a conflict zone.
Probably the best known crisis management product is kidnap for ransom and extortion cover (KRE), which is often sold as part of a corporate insurance policy. This can include evacuation cover, as well as protection from threat, unlawful detention, extortion and hijack. It can also be bought by high-net-worth individuals and families.
Typically it will reimburse ransom pay-outs (subject to the individual policy limit), and also would normally provide the insured with access to a special team of crisis managers intent on securing their release.
KRE insurance is controversial in some quarters, because of the belief that it fuels the “kidnapping industry” by making large pay-outs seem more likely to kidnappers in poor countries.
Some also think it’s more of a James Bond-type of rescue service than it is, at least most of the time. Those in the business stress that a lot of what they do is help with prevention, through education, and setting up procedures to facilitate emergency evacuation if needed.
“There’s a misconception about KRE,” said Scott Bolton, direct for business development and network relations at Aon Risk Solutions.
“People think it’s all about Russell Crowe bursting in, armed to the teeth, carrying a big bag of cash. That is the least important part of a policy.
“The point of KRE is so that employees and their families are protected from hostage situations – [so] that they will be evacuated if necessary; will be protected from extortion demands; [and] if they are wrongly detained, they will be helped.”
Because it’s “more about the services offered than the pay-out” itself, KRE is different from many other types of protection insurance, Bolton noted.
“Its value is in the experience of the respond consultants: those people who resolve the issue.”
The cost of such coverage varies widely, though it is, as a general rule, not cheap.
Industry sources explain that premiums are, not really surprisingly, geography- and activity-dependent, ranging from a few hundred pounds through to several thousand pounds for an individual’s trips, depending on where they’re going and what they’re up to – as well as how long they spend in risky environments, and what risk-reducing measures they have in place.
For corporate coverage, premiums can be a few thousand pounds up to several hundred thousand, according to one source, again influenced by the same factors: activity, location, duration of the visit, mitigation measures taken.
Doug Milne, chief executive officer of Special Contingency Risks (SCR), an insurance broker which is part of the Miller Group, said: “We have policies starting at US$20,000 a year, [up to] to well over US1m [a year in premiums]”. Perhaps not surprisingly at those rates, Milne adds, “99% of our policies are with companies.”
Bolton added: “KRE is a broad policy. Given the amount of situations which are covered [by it], it is quite cheap.”
Kidnapping can be for criminal, political or ideological reasons. Of these, the latter is the most feared and, for UK and US citizens in Syria and other troubled Middle East spots, potentially the most dangerous, kidnapping experts say.
Among other reasons, as SCR’s Milne pointed out, it’s illegal for UK companies to pay ransoms to terrorists. This, he noted, can limit what can be done for kidnapped Britons caught up in the Syrian conflict.
The crime of extortion – demanding money from individuals or companies, normally with an accompanying threat of some kind – has grown, meanwhile, thanks, experts say, to the increased use of the internet.
It can also be much easier than kidnapping, they add. “If you kidnap someone, you have to have somewhere to keep them, feed them and generally look after them,” said Suzy Simonsz, special risks manager for red24, an AIM-listed, London-based company which is retained by insurers to advise and mitigate risks for their policyholders in dangerous places.
“Extortion is cheaper and easier: all you need is an email or telephone number. Anybody can be extorted: a company, a person or even a country,” Simonsz added.
Piracy, while it has abated in the seas off Somalia, has simply shifted coasts in Africa, crisis management industry sources say. According to the International Maritime Bureau, at least ten major piracy incidents were reported in Nigerian waters alone between January and March of this year, with at least 14 crew kidnapped for ransom.
Maritime security in South East Asia, meanwhile, has long been an issue. Although co-ordinated efforts by states in the region have resulted in a drop in the incidence of piracy in the Strait of Malacca, a former piracy hotspot, there’s been an increase in maritime kidnappings for ransom by a Philippines-based Islamic extremist group, Abu Sayyaf, in Malaysian and Philippines waters.
This group, responsible for the April beheading of Canadian hostage John Ridsdel, has kidnapped at least 18 seafarers in recent months, crisis management industry sources say.
The real ‘stars’
When we hear about those whose job it is to attempt to resolve kidnapping, extortion and piracy cases, meanwhile, we typically imagine lantern-jawed heroes striding across Hollywood sets, setting free grateful victims as the baddies flee in terror.
The genuine specialist crisis managers, who typically do their work on behalf of a risk management company or insurer, in fact often have military or police force backgrounds. What’s unusual in these interventions, at least to those of us whose knowledge of kidnapping is limited to Hollywood films and TV shows, is that the kidnapper and the hostage are unlikely to realise that they (the crisis manager) are involved in the situation: only the insurer will be in the picture.
Simonsz explained: “Our negotiators work with the family, the corporate and the insurer to achieve the aims, which are always ultimately about bringing the hostage home safely. The team are involved until that point, and will provide support in a time of difficulty for all those involved.”
The earlier their experts get involved, the better, Simonsz added.
“Sometimes those involved will try to resolve matters themselves. That can be a mistake. A kidnapping is a very complex situation and one that you need expert help with.”
As reported here earlier this year, two major international private healthcare providers, Allianz Worldwide Care and April International, recently agreed tie-ups with red24, in order to boost their offerings to their overseas clients.
What about the ransom? “The policy limit will come into play” at this point, Milne said.
“And we will have an idea about the going rate – so if the kidnappers ask for US$20m, and we know the going rate is US$1m, we will help with the negotiations. But our aim is not to save money: it is always to get the victim out alive, and in reasonable time, and that is what nearly always happens – in non-terrorist cases it [the success rate] is in the high ninties [percentage-wise].
“But we have had more exceptions to this in the past four or five years than at any time in my 37-year career in this industry.”
An added variable to the equation is the fact that those who respond in crisis situations – the “respond specialists” – don’t actually work with insurers, according to Bolton.
“They are wholly independent, and keep the insurer at arm’s length.”
According to red24, based on estimates for the kidnapping of foreign nationals worldwide from January 2014 to August 2015, 81% are resolved, typically with a payment of a ransom.
Simonsz added: “Around 6% are rescued. We don’t usually advocate rescue: the risk of getting killed is higher.”
Added Milne: “The best opportunity for escape is at the snatch, when it’s worth watching for opportunities. But later than that it is very rare [for the kidnap victim] to escape safely.”
To see a list of famous kidnap victims, go to page 2.
| Companies that offer KRE|
Many insurance companies offer kidnap for ransom and extortion cover. The following are some of them: