Often referred to as “sleep well insurance,” kidnap and ransom coverage goes well beyond indemnifying policyholders for ransoms paid to kidnappers.
Aside from indemnification for ransoms paid, K&R insurance also provides employers with access to security consulting services before, during and after the kidnapping of an employee.
K&R coverage pays for the cost of investigating and responding to extortion attempts and threats, as well as any legal defense costs a company may be obligated to pay if it is sued by victims, their family members or shareholders as a result of an incident.
In addition, K&R insurance picks up the tab for certain related expenses, such as the cost of rewards to identify or find the perpetrators, travel, the victim's salary while that person is being held, the cost of paying replacement workers or even the salary of a family member who is forced to take time off from work while their loved one is held by kidnappers.
It also includes personal accident, evacuation and repatriation coverage in case a victim is maimed, disabled or killed, as well as coverage of the costs of post-event psychological counseling and physical rehabilitation.
Limits can go as high as $100 million (see related story).
While most U.S. companies usually purchase the coverage when they begin to enter foreign markets, it applies domestically as well.
In fact, some insurers, such as Hiscox Inc., call K&R coverage “a total security solution” for companies that may become exposed to nefarious activities ranging from actual abductions to attempted extortions and threats to harm their employees.
“Where somebody is threatened in any way, it's covered,” said Jeremy Lang, senior vice president and manager of U.S. kidnap and ransom at Hiscox in New York.
After an event has occurred, the policy also will cover the cost of psychological counseling and rehabilitation. “Because the incident can be so traumatic, employees very often need to take advantage of that part of the policy,” he said.
The Hiscox policy also includes a “prevention fund” that “can be used by the policyholder to work with a response firm on such things as crisis management plans, travel plans and procedures, etc.,” Mr. Lang said.
“The best way to survive a kidnap is by not being kidnapped in the first place,” said Jeroen Meijer, vice president and director of consulting at Control Risks Group Holdings Ltd., a Washington-based security firm that provides services often included as part of K&R coverage.
“We look at this risk from different angles, helping clients develop security protocols and providing training to employees to minimize their security risk through behavior change and by being alert to potential risks,” Mr. Meijer said.
For example, “we teach employees how to minimize routines to reduce the risk of being taken hostage, like not always leaving their hotels at the same time and walking the same route,” he said.
Security consulting firms such as Control Risk also help K&R policyholders manage kidnappings after they occur, providing advice and coaching from the sidelines, Mr. Meijer said.
Security consultants need to be discreet so kidnappers do not suspect the existence of a K&R insurance policy, said Andres Franzetti, engagement manager, partner solutions, at Clements Worldwide, a Washington-based managing general agency that underwrites K&R coverage on behalf of numerous insurers and Lloyd's of London.
In fact, insurers almost universally require companies as a condition of coverage to keep the existence of K&R policies confidential, even from their own employees.
“Kidnappers can usually tell if there's a professional involved. It can increase the potential for a higher ransom demand and complicate rescue efforts,” Mr. Franzetti said.
Moreover, when employees are aware they are covered by K&R insurance, they tend to take more risks that potentially could make them targets of kidnappers, Hiscox's Mr. Lang said.
Rather than informing traveling employees about the existence of K&R coverage, Hiscox recommends that employers provide employees a phone number to the response firm included with the kidnap insurance. “Really what you're paying for is a sense of security,” Mr. Lang said.
The security consulting and response firm usually provided as part of K&R coverage also helps with negotiations.
“The consultant will begin negotiations high enough so that they hopefully won't harm the victim, and then move the ball along to meet a price that everyone agrees on,” said Thomas Dunlap, assistant vice president and Southeast and Southwest regional manager for global crisis management at Liberty International Underwriters in Dallas.
The security firm also conducts a post-incident evaluation to help companies establish protocols to ensure that such events don't happen again. “How else do you forestall them from kidnapping another employee or even recapturing the person who was kidnapped initially?” Mr. Dunlap asked.
Though called kidnap and ransom coverage, most K&R policies also respond to wrongful detention, hijackings and extortion, experts note. In some cases, K&R policies will cover cyber extortion attempts as long as there is a ransom demand associated with them.
“More than 40% of the incidents responded to under our policies are actually extortions,” said Sarah Katz, assistant vice president in the kidnap, ransom and extortion department at Victor O. Schinnerer & Co. Inc., a division of Marsh Inc. in Chevy Chase, Md. Extortion “is a growing problem in Latin America and Mexico where companies get shakedowns from local criminal gangs,” she said.
Threats also are covered by K&R coverage, she added.
“Say a company in Mexico has a location there and a manager has a note pinned to his door with a dagger saying they know where he lives. Or it could be an email threatening to harm an insured person, or threats to reveal confidential information,” Ms. Katz said.
K&R insurance “will cover the crisis response team that would conduct a threat assessment and also cover the costs of putting temporary security measures in place,” she said.