Kidnap & ransom cover - what's new

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ITIJ 221 | June 2019

Hostage taking and kidnapping are on the decline in parts of the world where they once were rampant, so why are more travel insurers offering kidnap and ransom cover, not just to 'high-value targets' like corporate executives and high-net-worth individuals but also to individual business and leisure travellers? Robin Gauldie finds out

In May 1998, Vanity Fair magazine published a story entitled 'Adventures in the Ransom Trade'. In it, journalist William Prochnau alleged that hundreds of international business travellers and expatriates were abducted each year. Multinational corporations had paid out 'at least a billion dollars' in ransom, Prochnau wrote. With the end of the Cold War, he noted, kidnapping for ransom had ceased to be the province of politically motivated armed groups and had become a purely business criminal proposition.
Kidnap and ransom (K&R) insurance has, historically, been a specialised sector. Insureds were typically those perceived as 'high-value' targets for kidnappers, such as company executives travelling in high-risk areas, high-net-worth individuals and politicians. However, according to Sutcliffe & Co., a British independent insurance broker, more companies and individuals are now protecting themselves with kidnap insurance: “Kidnapping used to be confined to a few parts of the world, targeting political or wealthy individuals,” the company states on its website. “Now kidnap is being seen all over the world and victims are often selected at random for ransom.”
 
Evolving risk
“The reality is that risk is everywhere, with the distinction between safe markets and dangerous ones becoming marginal,” claims Richard Fenning, CEO of Control Risks, a global risk consultancy headquartered in the UK. The company provides backup for the security incident response policy recently introduced by Hiscox Special Risks, which underwrites more than half the world's specialist corporate protection insurance. Hiscox claims that the policy equips small-and-medium-sized businesses, as well as larger multinationals, with affordable and easily accessible incident response, crisis management, strategic advice and recovery services for threats such as 'kidnap, detention and extortion'.
 
The reality is that risk is everywhere, with the distinction between safe markets and dangerous ones becoming marginal
 
There is now statistically less actual risk in some regions that were once bywords for kidnapping, such as Colombia, where FARC, a revolutionary movement, has ended its decades-long guerrilla war. FARC used kidnap for ransom to finance its armed struggle and to generate publicity for its cause. Since it laid down its arms, kidnapping in Colombia has dramatically declined. From 3,572 incidents in 2000 at its peak, the number of kidnaps fell to 190 by 2017, according to Kidnap for Ransom – Global Trends, published in 2018 by NYA, a US security response consultancy.
However, pervasive media coverage of hostage taking by Islamist, nationalist and leftist militants in a wide range of countries from Syria and Afghanistan to the Philippines, Nigeria and Cameroon has sensitised providers and potential clients. Worldwide, there is a greater perceived need for adequate duty of care for employees of corporate clients, and more independent-spirited travellers than ever before are venturing off the beaten track into parts of the world where there is a greater perceived risk of kidnap.
 
The kidnap for ransom market is in decline, but the kidnap threat remains undiminished
 
“The kidnap for ransom market is in decline, but the kidnap threat remains undiminished,” said Michael O’Halloran, Director of Operations at Northcott Global Solutions, an international emergency response firm headquartered in the UK, citing 'at least 25 reported kidnaps across Malaysia, Nigeria, Pakistan, India, the US, Canada, Ireland, Trinidad & Tobago and Kenya' over just three days in March 2019. Insurance brokerage HUB International, in the US, explains on its website that there are around 15,000 K&R incidents globally each year, resulting in approximately half a billion US dollars being paid in ransoms.
Policies covering K&R typically provide a specialist whose job is to negotiate release of the insured or guide the insured through the situation to mitigate potential losses. Reimbursement of payment to the kidnappers is also covered, and cover may also include loss of income, injury, liability and theft of the ransom money in transit. Some insurers have also been known to attach conditions to policy wording, such as the requirement for the policyholder to have private security while travelling or imposing a curfew on them. However, according to a Market Conditions report in January 2019 – called Kidnap and Ransom Insurance – from consulting firm Gallagher, whose global headquarters are in the US, insurers are ‘generally not requiring any specific country exclusions’ and it does not anticipate seeing these added in 2019. 
For leisure travellers, avoiding areas where foreigners are at high risk of being kidnapped should be relatively easy. If anything, government departments like the US Department of State, UK Foreign and Commonwealth Office (FCO) and Australia's Department of Foreign Affairs and Trade err on the side of caution when alerting to such risks and advising against travel to certain areas. But a relatively new version of the crime is causing some concern. 'Express kidnapping' – snatching a victim, often on the street, then forcing them to use ATMs to make multiple withdrawals from bank and credit card accounts before they are freed – emerged in Latin America, with parts of Brazil and Mexico reported as areas of high risk, and is reportedly on the rise in this region and in African countries such as Kenya, South Africa, Mozambique, Zimbabwe and Nigeria.
However, some travel insurers argue that 'express kidnapping' is a misnomer and that such incidents are essentially no different from a simple robbery. “If your bank account is emptied during an express kidnap, that’s a matter for police and your bank,” says one insurance spokesperson.
Some also question the belief that 'express kidnappings' involving foreign travellers are on the increase. "As a proportion of claims we receive, express kidnap is very small. We see no evidence of a noticeable increase in express kidnap, not anecdotally anyway," says Phil Sylvester, spokesman for World Nomads, a Sydney-based provider of travel insurance and travel advice services.
 
Political motivations
Ideologically motivated hostage-taking is by no means a thing of the past. In Cameroon, the risk of kidnapping by secessionists seeking an independent state for the country's anglophone minority should be of concern to foreign businesses with employees working there, according to Hiscox Special Risks. In the Philippines, kidnap for ransom is a standard tactic for Islamist militants, according to NYA analyst Hugo Hadcock. Communist insurgents and non-political criminals are also involved in hostage-taking and kidnapping for ransom. Dutch tourist Elwold Horn, kidnapped in 2012, is believed to be still being held by the militant Aby Sayyaf group, along with Filipino hostages.
 
There are around 15,000 K&R incidents globally each year, resulting in approximately half a billion US dollars being paid in ransoms
 
Some governments oppose payment of ransom, saying that such payments may go into the coffers of terrorist groups. Thus, some governments make a distinction between criminal groups, to whom they allow ransoms to legally be paid, and terror groups, to whom they do not. Other governments have a ‘no ransoms paid’ policy, such as Canada and Australia. “The Australian Government does not make payments or concessions to kidnappers,” states Australia's Department of Foreign Affairs and Trade on its Smartraveller website. “Ransom payments to terrorist groups are likely to contravene Australian anti-terrorism financing laws.” 
In the UK, the FCO’s take on paying ransoms is similar and it believes that making such payments increases the risk of further hostage taking; while UK anti-terrorism legislation makes payments to terrorists illegal. The US State Department distinguishes between politically-motivated 'hostage taking' – aimed at putting pressure on governments – and 'kidnapping', which it defines as 'seizure or detention ... by criminals for ransom by a family or private employer’. In either case, the US strongly urges companies and private citizens not to pay ransom, the State Department says. Other countries, such as Spain, are much more liberal in their willingness to make any ransom payments.
“Kidnap is, of course, subdivided into political and financial motivations,” says Michael O'Halloran at Northcott Global Solutions. “Effective response options differ for each in much the same way as they do for effective political kidnap response. What is apparent in all of these different category types is the MO of the kidnapper, it being a mix of opportunistic kidnaps and those that are planned in advance – irrespective of the level of detail in that planning and regardless of whether it is for financial or political agendas. What remains apparent is that the most effective kidnap solution is to avoid being kidnapped in the first place. If the employer wants to effectively mitigate risk, a good insurance product may well have some form of hostile environment or situational awareness training for the insured offset in the premium, because learning how to avoid becoming a target is in itself a mitigation strategy that benefits the traveller and insurer. It is in the insurers’, employers’, and the travellers’ interest to avoid being targeted.”
 
The unprepared are at greatest risk
Risk-aware high-net-worth individuals generally favour adopting a low profile when travelling, or having a contract security detail strong enough to deter kidnappers, making them hard targets, O'Halloran says. “Organised criminal groupings or more opportunistic kidnappers much prefer kidnapping ‘soft’ targets,” he explained, “It’s the unprepared traveller, residential employee and local national who is at greatest risk.”
However, most kidnappings do not involve foreign nationals, confirms the NYA Kidnap for Ransom report. Only three per cent of 1,390 kidnappings reported in Mexico in 2017 involved foreigners, NYA's data showed, and foreigners accounted for only 12 per cent of such incidents worldwide.
 
Good K&R policies have unlimited consultant costs
 
“If the employers’ duty of care spans outside of working hours and office into holiday travel, and includes dependents, then K&R insurance is very much a beneficial resource,” emphasised O'Halloran. “K&R policies, whether they indemnify the ransom or not, are likely to support the hostage, family, and/or management team emotionally over a very stressful situation. Indemnifying this cost is a much safer economic compartmentalisation for budgetary purposes. You can budget for insurance premiums. You cannot budget for potential response costs for emergency risks that may or may not happen. All you can do is allocate an emergency fund in case you need it and hope you make it large enough to encompass all eventualities.”
For example, he points out, £50,000 may well fund around 40 days for one K&R consultant, but that won’t stretch to the flight costs, accommodation, out-of-pocket expenses, or the potential need to deploy two consultants, or a requirement in excess of 40 days. “Good K&R policies have unlimited consultant costs. Employers liability is justifiable using industry standard limits, as opposed to self-insuring on a blank cheque,” stated O'Halloran.
Carol Sherron, a senior vice president with Marsh Private Client Services, says some US insurance carriers offer endorsements that provide limited K&R coverage of around $100,000 on homeowner policies. However, she says, these limits are not sufficient for individuals travelling outside the US, and particularly not for affluent individuals and families. “From the private client / individual perspective, K&R insurers continue to offer policies that are of particular benefit to affluent individuals and families that travel for business and for pleasure,” Sherron said. “Our K&R insurers are focusing more on the locations travelled and less on the perceived net worth of the individual or family, although this is certainly a consideration.”
Many firms carry corporate K&R policies that will extend to personal travel, says Sherron, so many affluent individuals will have access to K&R coverage through the corporate policy and may not need a personal K&R policy. “For individual, affluent travellers, the locations travelled determine the level of risk,” she noted. “Our K&R carriers understand that and set rates and underwriting accordingly. While some locations may pose more of a perceived risk than actual risk, this can change quickly.”
Sherron cites the recent kidnap of American traveller Kimberley Sue Endecott in Uganda's Queen Elizabeth National Park, close to the border with the troubled Democratic Republic of Congo, in April 2019. She was freed after a 'negotiated settlement', Reuters reported on 8 April. Her kidnappers reportedly demanded a $500,000 ransom but, according to local media, settled for $30,000.
“Carriers are watching this case to better understand what actually transpired and many are discouraging travel to that area,” Sherron said.