LONDON-Commercial policyholders with operations in Iraq are increasingly seeking kidnap and ransom insurance coverage for their staff in the region following a spate of kidnappings.

But while coverage is available, underwriters are being extremely selective, and the price of the coverage is increasing, experts say.

In the past month, about 50 foreign workers in Iraq have been kidnapped, prompting some governments to advise civilians working there to leave the country.

The threat of kidnap is a concern for any company going into Iraq, said Michael Lent, a Southampton, England-based partner at Bond Pearce, a law firm that is advising companies undertaking projects in Iraq. Many employees and their families will likely insist on some form of protection before agreeing to work in Iraq, he noted.

Interest in buying K&R coverage for workers in Iraq has increased significantly over the past year, according to Tony Ratliff, a partner at JLT Risk Solutions Ltd. in London.

But despite the increase in demand, the market for K&R coverage in Iraq is limited to a few specialty insurers, brokers and underwriters say. Market sources declined to give rates on K&R coverage, saying that pricing varies greatly depending on specific risks.

Several Lloyd's of London underwriters say they will not underwrite K&R policies for civilians in Iraq because of the current volatility in the country.

Simon Low, lead underwriter for war and political risks at Wellington Underwriting P.L.C.'s syndicate 2020 in London, said his Lloyd's of London syndicate did not offer K&R coverage for businesses in Iraq because of the country's volatile political situation.

Wellington drastically reduced its K&R business in the wake of the Sept. 11, 2001, terrorist attacks in the United States because it believed better returns were achievable in other lines of business, he said.

ACE USA, a Philadelphia-based unit of ACE Ltd., last month launched a K&R product, but it is not targeting companies with operations in Iraq as potential clients. Many kidnap incidents in Iraq are politically motivated attempts to put pressure on countries that have provided troops to occupy the country to withdraw from Iraq, said Neil Young of Neil Young Associates, a risk management consultant based in Hereford, England, that is partnering with ACE on its product as a security consultant. "If the demand is to withdraw troops from Iraq, that is not the typical negotiation we get involved in," he commented.

Jean McDermott-Lucey, vp of ACE Specialty Products, said: "We will not say yes or no, we will look at every risk and underwrite on a case-by-case basis."

Steve Sadler, managing director for global client development at Marsh Inc. in New York, told attendees at a session at the recent Risk & Insurance Management Society Inc. annual conference in San Diego that it is becoming increasingly difficult to buy K&R coverage on the open market (see story, page 25).

K&R coverage is available, he said, but often as an extension to existing policies such as accident coverage, he said.

And rates are increasing for the coverage that is available.

Rates are up to 10 times higher than they were a few months ago, said JLT's Mr. Ratliff. "We are seeing no tail-off at the moment and are expecting more of the same in the near future," he added.

In addition, underwriters are demanding more information from policyholders on the staff they are sending to Iraq and the security measures they have in place, said Stephen Quinton, senior special risks underwriter at Cassidy Davis Insurance Group Ltd., a unit of St. Paul Travelers Cos. Inc. in London.

K&R policies typically provide companies with access to specialist consultancies that attempt to negotiate the safe release of kidnap victims, experts explained. The policy pays for those consultancy fees and any ransom money paid.

Mr. Quinton said kidnapping cases vary greatly, particularly in the volatile political climate in Iraq, and that political demands can develop into financial demands. The consultants' services are a valuable provision of the coverage, he said.

"A company looking to self-insure would land themselves with quite a high bill, hence the need for an insurance policy," he said.

In addition to increasing rates, insurers are restricting coverage terms. For example, insurers are often not providing personal accident coverage for captive workers, Mr. Ratliff said.

Policyholders are therefore having to buy what is usually a standard extension of the policy separately in the personal accident market, where weekly rates are between 1.5% and 2% of the sum insured, Mr. Ratliff said.

Several companies involved in rebuilding projects in Iraq declined to comment but stressed that security of their employees was paramount.

K&R policies purchased before the recent spate of kidnappings in Iraq likely have no exclusion for Iraq, one source said, so companies that habitually buy such insurance will likely have coverage for the region.

In addition, many companies undertaking projects in Iraq are using contract workers because of regular employees' reluctance to go to Iraq, one risk manager said. Companies may not be willing to purchase policies such as kidnap and ransom for such workers, he noted.

London-based insurer Hiscox P.L.C., one of the market leaders in kidnap and ransom coverage, declined to comment.