Several years ago the demand for Kidnap, Ransom and Extortion (KRE) insurance was driven by increases in reported kidnappings, with many more going reported.
Today, kidnappings remain a large concern and still many—as many as 80 percent—go unreported but demand for KRE products may result more from globalization than headline-grabbing incidents.
Steve Balmer, product manager for kidnap and ransom at Travelers said he has definitely seen an increase in submissions and inquiries for KRE products because additional businesses—not just Fortune 500 corporations—are quickly realizing they have new exposures.
“More and more organizations travel to conduct business, or expand the business, outside of the US,” Balmer told Advisen. “This risk applies to more companies—a different size of company.”
“The demand has increased to all sizes of business,” added Chris Arehart, global product manager for crime, kidnap and ransom insurance at Chubb Group. “This is a risk [businesses] are immediately seeing when they expand.”
Lalita Mohabir, national product leader, personal accident at Burns & Wilcox Canada, said the perception may be that kidnappings are “the stuff of Hollywood movies,” but for a growing number of companies the risk “is the stark reality of doing business abroad.”
Multiple sources told Advisen submissions for KRE insurance is up. There are many first-time buyers of the product and organizations with the insurance typically renew, and sometimes increase limits. The increasingly global economy has inspired demand among a larger swath of businesses with apparent “duty of care” issues for expatriate and local employees, as well as students and volunteers, said Denise Balan, vice president US Crisis Management at XL Catlin.
Other than businesses, KRE policies are also sold to individuals. “We get calls from parents of children going away for an internship, or for education,” Balan said. High net worth individuals are typically consumers of this coverage. The coverage typically remains a secret to employees—even directors and officers—because knowledge of insurance in an adverse situation can “change the dynamic of a negotiation,” Arehart said. Plus, there is some fear knowledge of the coverage could inspire some fraud or abuse.
Therefore, individual executives may purchase a policy because their company won’t tell them coverage exists. Who a person works does not necessarily have any bearing on the threat level anyway, explained Arehart.
“In most cases, the target is only perceived to have wealth because he or she is a Westerner,” he said. “It doesn’t usually matter where they work. There just needs to be a perception of an ability to pay a ransom.”
Competition in the insurance marketplace is relatively fierce and carriers in recent years have improved products to include piracy or political evacuation, for example, within policies or as endorsements. Coverage can also be had to protect against cyber extortion—a threat that a company will be hacked to cause a disruption or to steal trade secrets. Some sources said a stand-alone cyber policy is still needed to cover all cyber extortion exposure but others touted cyber extortion insurance as a way to fill deductible gaps in a cyber policy.
Business-interruption coverage in an event of, or a threat, resulting in the closure of a facility or a reduction in hours for the sake of workers’ safety can also be obtained, with multiple triggers. Balan said XL Catlin’s product contains provisions for workplace violence.
Structured in the past to meet the demands for large corporations, policies are now tailored to meet the needs of educational institutions, hospitals and churches (to cover missionaries).
“It seems anyone can fall victim to these emotionally and financially devastating events,” said Mohabir.
That said, coverage is affordable. For $1,000 in annual premium, $1 million limits can be had. Mohabir said $3 million limits are standard but she has been involved in an account with $50 million limits. Sources unanimously said the coverage depends on the client’s risk profile.
“The perception is this is an expensive line of insurance because of the stories heard of ransom demand amounts, but this is not a big insurance spend,” said Hart Brown, vice president of organizational resilience for Hub International. “Premiums are relatively low but it still depends on how many locations a company has, were they are, and how often people travel.”
Issued on an indemnity basis, policies can cover more than a named insured whether travelling for business or pleasure. An incomplete list of those potentially covered by a policy could include spouses, children, extended family, guests and employees of the household. Standard policies cover kidnap, ransom, hijacking, wrongful detention, extortion, liability and other expenses—24 hours a day, seven days a week.
Carriers in this niche have aligned themselves with private firms often comprised of intelligence officers and personnel trained in hostage negotiation. Decisions on insurance contracts are driven by the services provided—the knowledge you can get to protect your employees,” said Mohabir. “Each insurer has to have one (a firm) behind them.”
“The professional services provided and access to a dedicated crisis responder and consultant is key to any client,” said Balmer of Travelers. These private firms (Travelers works the Olive Group) are on call in the case of an incident to sit with a guide policyholders through an often very complicated process. And, these firms can also be used to provide advise before traveling or before expanding a business to a certain “hotspot.”
“The single-most important aspect of the product is instantaneous access to individuals who can save your life,” said Chubb’s Arehart. “The first 24 hours of a situation is critical the most critical.”
Firms are often deployed immediately to assist policyholders once an event has happened and they’ve called a hotline to report an incident, or the possibility of one. These consultants know the language and customs of and have extensive experience negotiating demands in order to get someone out of a dangerous situation.
Policyholders will not be cut off at a certain dollar amount for these services. Carriers said the expense is unlimited. Consultants work on behalf of the insured, not the insurer.
Brown said the quality of consultants can have an impact on the purchase, and there are only so many quality consultants to go around. There are only a certain amount with dedicated, full-time crisis responders, he said.
Chad Hemenway is Managing Editor of Advisen News. He has more than 15 years of journalist experience at a variety of online, daily, and weekly publications. He has covered P&C insurance news since 2007, and he has experience writing about all P&C lines as well as regulation and litigation. Chad won a Jesse H. Neal Award for Best Single Article in 2014 for his coverage of the insurance implications of traumatic brain injuries and Best News Coverage in 2013 for coverage of Superstorm Sandy. Contact Chad at 212.897.4824 or [email protected].
