Why brokers can't afford to overlook kidnap and ransom insurance

It may be a worrying sign of the times, but kidnap and ransom (K&R) insurance has become an increasingly critical risk management component in today’s global landscape, addressing risks such as abduction, extortion, and ransom.

While demand for this coverage dipped during COVID-19, recent years have seen a rebound driven by factors such as the return of business travel, rising geopolitical tensions, economic instability, and evolving criminal tactics. In January, for instance, reports surfaced of a ‘cyber kidnapping’ scam that extorted a Chinese family of a foreign exchange student studying in the US. Additionally, early last week, two abducted businessmen were found dead in the Philippines.

Yet just because the insurance coverage is increasingly popular doesn’t make it an “easy win” for brokers. Mike Westen (pictured above, left), crime product management lead at Travelers, emphasized the challenge of accurately quantifying the risks and costs associated with kidnap and ransom. This difficulty arises largely from widespread underreporting trends, both within the US and abroad. According to estimates from the Bureau of Consular Affairs at the US State Department, 60-70% of overseas kidnappings of US citizens go unreported.

Yet Westen acknowledged that despite this underreporting, K&R incidents remain relatively infrequent but do pose high risks. “When these incidents occur, the consequences can be severe,” he said. “Our priority is to take proactive measures before these dark days happen.”

Who needs K&R insurance and what should brokers look for?

According to Westen, while large organizations with global offices (high risk areas include Latin America, Russia and Africa), traditionally express interest in kidnap and ransom insurance, smaller entities may also find it beneficial. With premium costs ranging from $1,000 to hundreds of thousands of dollars, K&R coverage may be well worth it in the event of an actual kidnapping as claims can easily reach millions of dollars.   

Mark Carlson (pictured right), director at SPS Global, Travelers K&R crisis management partner, highlighted another market for brokers: high-net-worth individuals with prominent family names and businesses. Recent displays of wealth by figures like Anant Ambani, son of Asia’s richest man Mukesh Ambani, have made global headlines, drawing attention to the families’ billion-dollar fortune.

Highlighting the leading motivations behind K&R incidents Carlson listed financial gain, political statements, and business-related disputes, and recalled: “I’ve seen a few cases where one person would kidnap someone from another business to extract payment as a pressure tactic.”

Due to the especially rapid escalation and unpredictability of K&R scenarios, Westen advised brokers to prioritize policies that offer the most comprehensive coverage to ensure clients are protected when worst-case scenarios arise. “If you’re a reputable carrier, you’ve got a breadth of coverage that that should meet whatever risk the future may bring. It’s just a matter of customizing the risk to the needs of your client or organization,” shared Westen.

Key coverages and the importance of professional negotiators  

As a starting point, brokers may wish to ensure clients have access to the following K&R coverages:  

• Ransom payment: Coverage for the cost of ransom payments made to secure the release of kidnapped individuals.
• Loss of ransom in transit: Coverage for the loss of ransom money while it is being transported to kidnappers.
• Negotiation expenses: Coverage for fees and expenses related to hiring negotiators or crisis management consultants.

Carlson also emphasizes the importance of working with teams capable of handling high-pressure situations. He stressed the significance of engaging in negotiations rather than yielding to criminal demands, a component insureds often underestimate.

“The rescue phase poses the highest risk for victims. Our objective is to negotiate skillfully with the abductors, aiming for a fair ransom payment,” Carlson explained. He cautioned against emotional reactions; in K&R negotiations, striking the right balance is crucial. Paying too much or too quickly could inadvertently increase the client’s risk of becoming a repeat target.

Other key covers include:

• Legal liability: Coverage for any legal liabilities arising from the kidnapping or extortion event.
• Medical and psychiatric care: Coverage for medical, psychiatric, or psychological care for the victims and their families.
• Salary continuation: Coverage for the salaries of the kidnapped victim and potentially their family members during the period of captivity.
• Personal security expenses: Coverage for personal security services for the victim and their family members after the release.

Managing an evolving risk landscape 

With ransom demands on the rise, the benefits of kidnap and ransom insurance are further underscored by the expertise of teams who understand evolving negotiation tactics.

“We’re now seeing cases in certain parts of the world where the abductors will only communicate through text messaging via WhatsApp, avoiding voice communication altogether. I encountered this in a case a few years ago. When someone from the family called the kidnappers, they got very upset, so we transitioned all communication back to WhatsApp,” Carlson explained.

In instances like this, Carlson noted that it is often easier to work with experienced kidnappers, who tend to be less erratic and emotional. This reduces the likelihood of victims being harmed and increases the chances of successful negotiations.

“A kidnap policy is only as good as the crisis management firm that backs it. That’s really what clients are buying,” shared Westen.