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National Coverage News & Markets
By Kenneth J. St. Onge
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ts name distracts both buyers and agents: Kidnap and Ransom (K&R) coverage. It’s something for big companies, they think. Or the uber-rich. Well, no more, due to the slew of new and emerging dangers for businesses and other entities that work with, deal, supply, sell or otherwise interact with counterparts or subsidiaries in foreign countries. Although kidnappings and ransoms are nothing new, the tactics and boldness of today’s kidnappers, pirates, extortionists and cyber-criminals have companies, executives and families that travel overseas thinking about insurance protection that seemed unnecessary a generation ago. Insurance agents needn’t look far to find clients with potential risks. Consider: The manufacturing company that occasionally sends employees to Mexico; a design firm that recently set up a subsidiary in China; a
school with a study abroad program; a consultant who regularly travels to parts of Central or South America or the Far East. All are potential customers, and some don’t realize the risks that lurk in cyberspace or on foreign soil in today’s global economy. A glance through recent headlines reinforces the maze of possible, insurable exposures. Pirate attacks are up in the Gulf of Aden and expanding into the Indian Ocean. Former President Clinton flew to North Korea to negotiate the release of two kidnapped journalists. School shootings on college campuses have become a major concern. Splashed across the front page, are real-life, scary scenarios where those involved would be well advised to have been carrying K&R. And those are just the situations that are made public. The bottom line – insurers, brokers and security experts say – is that technology
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and global economics are reinforcing a greater need for the types of perils covered by the K&R policy. Perils Kidnapping and holding someone or something for ransom is nothing new; it’s gone on for centuries in one form or another. But the frequency and complexity of these crimes is changing, and K&R coverage is adapting to these changes. Traditional kidnapping – where a victim is held for ransom – is covered by a traditional policy. But over the last few years, the nature of kidnapping and ransom has evolved, according to Greg Bangs, the product manager for Chubb Corp. who oversees K&R coverage, and that is prompting changes to the policy. “There have been a lot of developments, in kidnapping, new wrinkles in the landscape www.insurancejournal.com
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that companies have to watch for,” he said. For instance, policies are now being designed to cover virtual kidnapping. In this scenario, a kidnapper fools colleagues or relatives of a person into thinking the person has been kidnapped. This happens any number of ways, Bangs said, but a typical scenario might involve kidnappers obtaining personal information about a victim such as birth date and parents’ names, and then waiting for a time when the victim is out of reach by phone – such as during a concert, for instance. The kidnappers will then extort money from the victims’ family or company by claiming a kidnapping has taken place, even though none has. It’s a trend which is common in parts of Central America, but K&R experts believe criminals will seek to expand the crime in other regions. There is also a broad and increasingly common range of K&R-covered crimes that are perpetrated against businesses. The piracy and ransom of ships that has been increasing in and around the waters of Somalia is a classic example. But there are a range of newer, technology-driven crimes that businesses should be on the watch for. Bangs said an increasingly common threat involves hackers extorting money from a company. Commonly, it involves breaking into break into a computer system and holding information hostage. “Unfortunately, it’s happening a lot more, although these incidents are not being reported publicly,” Bangs said. “If you’re a company and you’re attacked, the last thing you want to do is make it public.” Another increasingly common risk – which K&R coverage is now being tailored to cover – involves a scenario known as “wrongful detention.” A typical case involves officials in other countries – China, for instance – who throw executives and businesspeople in jail without charges in order to influence business negotiations. Over the last few years, as more and more businesses have become international in scope, this type of coverage has become a real need, insurers say. The demand for K&R protection is also being fueled by the threats posed by terrorists who want to sabotage food supplies, threaten contaminations and the whole www.insurancejournal.com
do occur. “Extra services have really proliferated over the last few years,” Blais said. “Clients want to know the services they get with this and the kinds of firms they can call on in case of a problem. That is very important.” Carriers are taking notice and positioning their policies as huge, value-added services — particularly for the logistics involved in thwarting potential kidnappings and extortion, as well as resolving Traveling Employees them. “The demand for the coverage has gone “Resolving these types of issues can be up substantially for domestic companies expensive,” said Chubb’s Bangs. “There is with employees who do a lot of foreign the cost of the security consultant. There travel,” said Philip L. Blais, president of may be a need for legal advice. Perhaps Texas-based Blais Excess & Surplus there’s the need to hire a public relations Agency. “They’re much more keen on the firm to deal with related issues. Even just coverage.” He said he’s seen a spike in demand par- the cost to fly people around to deal with any problems can be expensive. But those ticularly over the last two years for K&R are covered costs in a traditional policy.” coverage for firms with operations in the Many of the security Texas-Mexico border consultants, which protowns like El Paso, as well vide these services as organizations that have Policies now cover through an insurer, send employees traveling frequent updates to abroad. There’s also been a virtual kidnapping, clients about potential corresponding spike in where colleagues or hotspots and practices interest from executives who have children relatives are fooled they can take to limit risks to employees or enrolled in study abroad into thinking a their families. programs, he said. Chris Voss, a former FBI Blais has a unique perperson has been hostage negotiator who spective on the K&R markidnapped. now heads the K&R ket. He began his insurpractice at Insite ance career 30 years ago Security, says that the kidworking on K&R at nappers’ growing sophistication and the Chubb, and later, AIG, before launching tendency of a criminal in one area to his agency – which sells K&R coverage mimic a successful crime in another, create from nearly every carrier. potential K&R exposures. Part of the attraction, Blais said, is that “It’s the ability to get paid and the abilithe cost of K&R insurance — which has ty to get away,” Voss said. “Kidnapping is increased slightly — remains minimal in like a virus that, once it gets started it relation to the expanded coverages grantflourishes out of control. For criminals, it’s ed, limits and exposures covered, he said. a great business to be in where the condiThe other part is that the contemporary tion are right — lack of law enforcement K&R policy has become much more like a and environment that allows (kidnaprisk management plan. Those who buy the ping).” coverage are typically buying ready-made The growth in demand for K&R in access to specialized K&R security conMexico doesn’t surprise Voss, he said. The sultants who can work with companies and clients to plan ways of avoiding poten- area has been under siege by drug cartels tial exposures, as well as resolve those that continued on page N26 host of other possible extortion schemes covered by K&R. Although the bread and butter of the K&R industry continues to be coverage for kidnapped employees and family members, the evolution of the product, and its customer base, is being reshaped by the emergence of new threats – and innovative products designed to help insureds respond to them.
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National Coverage News & Markets Abductions, continued from page N23
over the last decade, and those same organizations have found kidnapping and extortions to be a good revenue source. It’s worthwhile to note, Voss said, that Mexican kidnappers tend to avoid white Americans, and instead often focus on their ethnic Mexican business partners and employees. It’s a trend that is seen in most parts of the world, where established kidnappers have become wary of taking Americans not only because it encourages intervention by U.S. law enforcement, but also because payments for victims from America, as well as from Canada and Great Britain, are often slow to arrive and difficult to obtain. A kidnapped Mexican, however, is not perceived by criminals as having access to the same type of resources. K&R insurers are betting that demand for the product will continue to rise, given the nature of extortion-related crimes, and the growing need for companies to be pro-active about avoiding potential exposures, and creating a plan to mitigate any potential losses.
Hiscox, one of the largest K&R insurers in access to the consultants, who can work the world, launched its U.S.-based division with clients to find ways of lowering potenlast year in New York, hoping to expand its tial risk. The Hiscox K&R policy includes a domestic market share. As part of its K&R “subvention fund,” which provides paypackage, Hiscox gives clients exclusive ments for consultants to perform the kinds access to a consulting firm, Control Risks, of risk assessments and planning that the which has worked more than 1,500 cases of client chooses, Lang said. kidnapping and ransom. Lang, like the others, “What we see the need says the coverage – given for is total security manthe range of potential expoWrongful detention agement,” said Jeremy sures — is something cases involve forLang, vice president and worthwhile for businesses manager of U.S. K&R covwith fewer than 20 employeign officials throwerage for Hiscox, who is ees, as well as those with ing innocent people based in Manhattan. “The more than 200,000. But coverages we provide are still, the coverage suffers in jail in order to rather extensive and from a perception problem influence business expansive.” among smaller, potential He said that among the buyers, he said. negotiations. items covered are school “The biggest obstacle I shootings, evacuations and have is in education,” Lang other risks that may not immediately said. “Many don’t understand what the covspring to mind for some K&R buyers. But erage is and what it does. A lot of people one of the biggest selling points is the think: ‘K&R? We’re not at risk. But in many cases they are.” It’s not yet a frequently sought out coverage, however, some agents think that K&R, given the range of newer exposures it guards against, is a good growth product. Daniel Wilcox, principal of Wilcox Insurance Brokers in Prairieville, Louisiana, is one. He sells K&R coverage through London-based Petersen International Underwriters. Many of his K&R clients and prospects are from religious-affiliated organizations. He recently wrote a policy to cover a college student who was going on a mission trip to Tanzania. Another recent client was an oil industry consultant who regularly travels to hotspot areas in the Middle East and Asia. Wilcox, whose main lines of business are health-related, said the K&R coverage is a P/C line he wants to expand, given what he says is an unmet and often unrealized need. “It’s not something that people are running to your door to buy, but people are looking into it more,” Wilcox said. “For me, it’s been sales that have come across our door by accident, but after I stumbled across then I began realizing that if we marketed this better, we could sell it more.” IJ
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