The ABC’s of “K&R”: Kidnap and Ransom Insurance

Kidnap and ransom insurance is a stand-alone policy that provides coverage for owners, directors, family members and managers of companies who might be kidnapped and held for ransom either in the United States or outside of the country.

Any company that has significant assets, family owners or staff that travels outside the United States should seriously consider purchasing kidnap and ransom (K&R) insurance. It is a fairly reasonable form of insurance that provides broad coverage for companies, their owners and employees for incidents involving the kidnapping of key company employees both here in the United States and abroad.

These days, travelling outside of the United States can be risky due to political instability in many countries. There is a great deal of unrest in the Middle East and Africa that allows many terrorist groups to operate without much concern of military or police activity. South of the U.S. border, drug cartels and rebel groups seem to be as prevalent and organized as the local police departments. Even the Far East - India, Thailand, China, and Japan - has its share of splinter terrorist and drug-related groups that seem capable of doing anything they need to do in order to support their activities. Travel to these areas is often not recommended by the U.S. State Department, but sometimes it is impossible to avoid these areas to conduct business or to vacation. Even if you don’t travel outside the United States, you are exposed daily to threats of home invasion and kidnap.

Although kidnappings for ransom are uncommon in the United States, there has been an increase in these activities due to the drug related activities along the Mexican border. Some of the more startling facts regarding kidnapping:

• Over 30,000 people are kidnapped every year.
• There were 1200 kidnappings for ransom in Mexico in 2009.
• The top three countries for kidnappings are (1) Venezuela, (2) Philippines and (3) Mexico.
• The average ransom demand is $1.15 million; the average settlement is $355,000.
• Although 94 percent of kidnap victims survive, 70 percent of kidnappings are resolved by the payment of ransom.

A couple of actual examples will illustrate the type of claims that occur:

• The president of a company was kidnapped in the company parking lot and held for five days before the ransom was paid. The company had to borrow the $650,000 and pay interest on the loan to pay the demand.  They also had to pay $2000 per day for a negotiator, $500 a day for recording equipment, and $200 per day to pay for security guards for the president’s family.
   
• Agricultural engineers were invited to bid on building three commercial greenhouses in the country. Met at the airport by the supposed interested parties, they were driven straight to the “kidnap” house and held by the kidnappers until the ransom demands were paid by their families.

In both of these cases, the families or the company had to come up with the ransom funds and pay the extra expenses required to negotiate the release of the victims. Kidnap and ransom insurance would have significantly helped in both of these cases. Not only would the insurance have paid the ransom but the insurance carriers would also have provided the experts to manage the situation. Often, carriers have contracts with experts who can use their understanding of local cultural and political issues to move the negotiations along quickly. Typical kidnap and ransom insurance provides the following coverage:

• Ransom or extortion payments
• Expense coverage for public relations, medical, cosmetic, psychiatric, and dental services
• Rest and rehabilitation costs
• Reward payments for informants
• Salaries of employees and temps needed to replace employees
• Accidental death and dismemberment coverage
• Expenses for crisis management experts and negotiators to effect release of the victim

Perhaps the most convincing element of K&R insurance is that it is so reasonable. Rates will vary depending on the number of covered persons, the amount of international travel and the limit of coverage desired, but a policy that provides $1 million in ransom coverage in addition to expenses can be as little as $500. At this rate, it’s a very affordable coverage for any firm to consider. And K&R can be purchased as a stand-alone policy, with no requirement for any other coverage to be purchased.

If you have questions about K&R or any other property and casualty insurance, please contact Greg Nelson, Director of Commercial Lines at (949) 885-2287 or gnelson@wga.com.