A California man who owns a luxury car dealership remains missing after he was abducted by three men in July near Los Angeles, California, according to authorities. His captors have demanded $2 million in ransom.
The kidnappers reportedly contacted missing entrepreneur Ruochen “Tony” Liao’s family in China to demand the ransom. The captors did not say how to deliver the money. The family has not heard from the suspects in about a month, but has since offered a $150,000 reward for information that could lead to locating Liao. In addition, the FBI has offered a $25,000 reward.
This example illustrates how the threat of kidnapping and extortion has dramatically increased. Control Risks recorded kidnap-for-ransom cases in 87 countries in 2017. Most cases were resolved quickly, but four percent had not been resolved within the first month.
Any leads generally will spur action – and such activities cost money. Liao’s situation is an example of why affluent individuals, families and large employers should consider a Kidnap and Ransom (K&R) Insurancepolicy in the U.S. and Canada.
K&R policies generally cover costs associated with kidnapping, extortion, wrongful detention and hijacking as it applies to one or more individuals or a group. This essentially is an indemnity policy because it will reimburse a loss incurred by the insured. The policies do not pay ransoms on behalf of the insured, but it can include reimbursement for money paid by the insured for extortion or ransom.
“It’s a policy that is for the family of the kidnapped person as much as it is for the individual,” said Lalita Mohabir, National Product Leader and Personal Accident/Special Risks Manager, Burns & Wilcox Canada, Toronto, Ontario. “We sell these on an individual basis to affluent individuals and families and as part of group policies to employers. When selling to employers, they can treat it more as an employee benefit, much like a life insurance policy.”
Kidnappings can happen to anyone
In 2014, more than two dozen Americans working for companies were kidnapped in terrorism-related incidents, according to CNBC.
The U.S. government has traditionally not paid for ransoms for Americans kidnapped by terrorists, putting more of the onus on the individuals, families or companies themselves to help support recovery efforts.
About 60 percent to 70 percent of overseas kidnapping of U.S. citizens goes unreported, according to the Bureau of Consular Affairs at the U.S. State Department.
“The news media may not cover or may not know about a kidnapping or ransom situation locally, but these events can happen right in our backyard,” Mohabir said.
A 21-year-old man was taken by five men in late July at a motel in Berkeley, California. They threatened to kill him unless they were paid $30,000. This incident was successfully resolved with the safe return of the victim and five arrests.
About 650,000 missing person reports have been filed with the National Crime Information Center in the U.S. each of the past two years. The number of missing persons is much higher when including unreported cases. More than 88,000 cases remained active at the beginning of 2018. In Canada, more than 70,000 individuals are reported missing each year.
Comprehensive coverage for the unforeseen
A K&R policy can cover a wide range of costs, including the ransom fee, security, travel associated with managing the recovery of a person, interpreters, legal fees and crisis communication. Following the conclusion of the incident, the kidnapped person may have medical and dental bills, psychiatry fees and other financial needs, in addition to a possible loss of income.
A K&R policy can also reimburse the insured for interest if a loan is required for the ransom payment.
“It covers the event and the aftermath of the event,” said Heather Schaaf, Underwriting Director, Executive Liability, Burns & Wilcox, Chicago, Illinois. “There are many additional costs that can accrue when a person who was kidnapped comes back.”
A crisis control team is available to the insured and family members as part of most policies. Employers can have 24/7 access to information available about the situation under a group policy.
“This is a very broad policy that covers more than you might think,” Schaaf said. “In a crisis you need a fast, specialized response that is organized whenever/wherever the incident happens. Threats to personal and business security are frequent and unpredictable.”
The insured family members should not let hostage takers know that a K&R policy exists because it could adversely compromise the situation.
“It’s supposed to be a confidential policy,” Mohabir said.
For executives looking at new job opportunities, inquiring about K&R coverage could be discussed during the negotiation phase, Mohabir added.
Often employers will purchase a group policy to protect directors and officers or executives, said Schaaf. Airlines, maritime companies, employers with frequent global travel and affluent individuals are some of the most likely clients for such policies. Additionally, organizations that are at high risk for threats of abduction or hostage situations, such as hospitals and credit unions, are also key targets. Contractors and part-time and seasonal employees can be covered as well.
The length of a K&R policy can range from one day to three years on average, Mohabir said. A short-term policy can cover an individual or family during a vacation or business trip. Group or individual policies will cover insured individuals no matter where they are in the world, unless otherwise noted.
Additional insurance coverage is available as extensions to the core K&R policy, including business interruption, emergency security evacuations and cyber extortion business interruption, Schaaf said. Domestic instances may also be covered when it relates to threats at the workplace, in which case an in-office security team is hired to protect all employees onsite.
Policies can be affordable and are generally available
During kidnap-for-ransom instances, the average ransom demand is $1.15 million, the average settlement is $355,000 and about 98 percent of insured criminal kidnapping victims are safely retrieved, according to Burns & Wilcox.
Aggregate policy limits up to $50 million are possible and limits made available by the carrier are partially based on family net worth for individual policies and a company’s net assets for group policies. Individual policies can start at between $1,000 and $1,500 for a short-term or annual policy. The costs will be based on many risk factors, including where the insured travels, size of the company and type of work or industry.
Group or individual policies that involve less travel to certains parts of the world where kidnappings for ransom are more common may be more affordable. While there are many carriers that may offer K&R policies, what is covered can vary, Schaaf said.
“I’ve found that few carriers offer a broad K&R policy that will include all the reimbursable expenses,” she said. This is why working with an insurance broker or agent is critical, Schaaf added.
“You have to remember that we don’t ask whether a person is traveling on a vacation or for business,” Mohabir said. “It usually doesn’t matter where they’re going or why, it’s really an added benefit that is always available to them.”
As with any coverage need, an insurance broker or agent must be consulted. Click here to forward this article to your insurance broker or agent to ask if you need this coverage, or share this with clients to start the conversation and ensure proper protection.
This information was provided by Burns & Wilcox, North America’s leading wholesale insurance broker and underwriting manager. Burns & Wilcox works exclusively with retail insurance brokers and agents to assist clients like you with their specialty insurance needs. Ask your insurance broker or agent if a Kidnap and Ransom policy is right for you.
