In the Underworld: Kidnapping, Hostage-Taking and Extortion On the Rise

By | July 10, 2000

Kidnapping, wrongful detention and all kinds of extortion demands are definitely on the rise. So says Diane Borden, AIG Europe Vice President and head of the crisis management unit at American International Underwriter’s Paris office. “It’s a growth industry throughout the world, and not just in ‘high risk’ countries,” she said.

A recent report by Britain’s Hiscox Group, a leading specialty insurer, which operates independently and through the Lloyd’s market, found that the number of reported worldwide kidnappings for ransom rose from the 1998 peak of 1,690 to 1,789 in 1999, a rise of 6 percent, and 92 percent of those incidents took place in the top-10 riskiest countries.”

The survey also reveals that worldwide kidnappings for ransom have risen 70 percent over the last eight years. The total number of kidnappings is likely to be considerably higher, because many incidents—particularly in developing countries—go unreported to the authorities and are dealt with privately.

A recent bulletin from commercial insurance broker Assurex International noted that the kidnapping of American executives and their families is increasing, particularly in Latin America, where it’s a multi-million-dollar criminal industry. When rich or famous people are kidnapped it makes headlines, but according to Assurex the most frequent victims of kidnapping are middle-class executives and their families, including infants and young children.

International companies now face the threat that managers and their families in foreign countries have become attractive targets. Casual tourists aren’t immune either, as the recent mass kidnapping of a group of scuba divers in the Philippines all too plainly shows. In addition, Borden pointed out that “extortion demands and threats also pose a serious risk; that can happen anywhere, and take many forms, from drive-by shootings to product tampering to computer hacking.”

Coverage saves lives
“If kidnapped in Latin America, your chances of survival are slim unless you pay the ransom,” the Assurex bulletin states chillingly.

Having kidnap and ransom (K&R) coverage in place makes a great deal of difference. According to Assurex President and CEO Thomas W. Harvey, “K&R insurance guarantees your ransom will be paid and offers hope that you will return home shaken, but alive.” He noted that Americans with coverage are four times more likely to survive a kidnapping than those without it.

While local governments attempt to control incidents, many of them lack resources or are ill equipped to do so. “They’re not always the best ones to deal with the problem,” said Alex Gordon Shute, Hiscox spokeswoman.

Therefore, the insurance industry has stepped in to aid companies by increasing the scope of K/R&E (extortion) coverage and by offering crisis management services to reduce the chances of an event occurring, and to try and resolve situations when they do occur, without loss of life.

Varying types of risk
“U.S. companies are becoming more global and are going into developing countries where the security risks can be huge,” said Bruce Hayes, senior vice president of the Zurich U.S. Executive Assurance group. “That, in addition to the greater number of people traveling all over the world, helped guide us in building a new policy with greater flexibility and broader coverage to address today’s needs.”

“We have two types of persons at risk,” Gordon Shute said. “People who travel frequently to high risk areas, and those who are posted there…The risk of being kidnapped is also proportionate to the amount of money victims have behind them.”

Borden stressed that “all countries, regions and cities are different, and you have to assess the risks involved by who is at risk and for which peril, depending on where they are and what they do. For instance, a dot-com company doesn’t face a high kidnapping risk, but is certainly vulnerable to extortion demands, while a construction company may have a high risk of kidnapping in one area, and be exposed to extortion demands in another.”

As the world grows more complex, policies change to address new needs. Ten years ago, no one worried about computer viruses, now it’s a major area of concern.

Thus, Zurich offers a comprehensive $50-million K/R&E product for kidnapping, hijacking, extortion and computer virus exposures. Discussing Zurich’s policy, Patrick Evans, assistant vice president in the Executive Assurance group, indicated that “our product has expanded traditional coverages; for example, we cover independent contractors and temporary workers as employees.”

AIU’s basic K/R&E policy, also with limits up to $50 million, can be tailored to meet specific client needs. The policy covers not only kidnapping and bodily injury, but also extortion, blackmail or property damage extortion—including trade secrets, proprietary information, computer viruses and product contamination. “We are increasingly involved in assessing those risks and providing coverage,” Borden said. “We keep track of local conditions and constantly update our risk analysis to accurately evaluate them.”

AIU has identified a diverse group of potential customers, which shows the pervasive nature of the threat. Along with multinationals of all types, it includes “financial institutions, religious and charitable organizations, high net-worth individuals and high profile individuals (i.e. sports figures, socially/politically prominent and famous people), [and] American schools with foreign campuses.”

Security is essential
Effective K/R&E coverage depends on crisis management teams to handle events when they do occur, as well as to assess risk and to protect against possible threats. Both Borden and Gordon Shute emphasized the critical roll played by the security-consulting firms who provide these services.

Hiscox has contracted with U.K.-based Control Risk Response Group, which has offices worldwide, to provide preventative consulting services, training courses and advice on how to protect property and personnel. “The key to effective kidnap and ransom coverage is the relationship between the insured and Control Risk Group,” Gordon Shute said.

“In addition to the preventative services, they have response teams on call 24 hours a day to deal with an incident when one occurs. The chances of survival are much better when trained experts do the negotiating.”

AIU offers clients an opportunity to work with Kroll Associates, a well-known security firm that, in addition to hostage negotiations and security, will provide “comprehensive services including pre-incident planning, counter-terrorism and evasive driving courses and car armoring.” It is of utmost importance to both insurer and insured to make sure that all possible measures are taken to avoid a kidnapping or an extortion threat.

Kroll’s knowledge and assessment of local conditions is crucial when a kidnapping is involved. “They usually speak the local language, they monitor local conditions, and frequently know who’s involved,” Borden said. “For example, ransom demands vary. It may be a few thousand dollars in the Philippines, or over a million in Colombia.”

Zurich’s coverage provides similar security services. “The ultimate goal is to assure the victim’s release as soon as possible without further risk of harm and to try to make sure that it doesn’t happen again,” Shute said.

Trying to recover
Even when a kidnapping is successfully resolved, there is still a need for further services. “Our claims policy is to make sure we’ve covered everything,” Borden said. “We’ll pay for psychological counseling, vacation expenses after an incident for the victim and the family,
job retraining if they can’t return to their post, even cosmetic surgery if it’s necessary. Whatever it takes to make that person whole again is part of our coverage.” She added, however, that no kidnap victim can ever totally forget the experience.

Borden also pointed out an aspect of crisis management that is almost unique in the insurance industry. “The fact that you have the coverage must remain confidential,” she said. “It’s a standard condition in all our policies, and, although we’d cover the immediate incident, if our coverage became known, we’d cancel the policy afterwards.” Hiscox has the same strictures.

In addition, Borden warned that “corporations and governments have an increasing responsibility to protect their employees and customers,” and that failure to do so may expose the company and its directors and officers to liability.

Good news and bad
The good news is that K/R&E coverage is available, and that it can materially reduce the risks for travelers, company employees and the companies themselves. If an incident occurs, highly trained response teams are on call to deal with it, which greatly increases the chances the victim will survive.

The bad news is that such incidents are on the increase.

“Kidnappers are very rarely caught,” Borden said, “and kidnapping and extortion are much easier ways to make money than mugging and dealing drugs. In many cases there’s no kidnapping involved—just a threat is often enough to get money.”

Borden also predicted that as U.S. companies expand south of the border into Central America, this region, previously not considered high risk, would see a rise in kidnapping and extortion threats.

To comment on this article, please send e-mail to at ijwest@insurancejournal.com.

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