For most Americans, the notion of being kidnapped and held for ransom is nothing more than the plot to a good action movie. For international business travelers, wealthy, or high-profile individuals living and traveling abroad (or individuals perceived as such), however, kidnapping can be a very real threat.
Kidnapping for ransom has historically been a profitable enterprise. As American companies expand their bases of operations and global reach, the number of targets and the number of countries with perceived threats has increased exponentially. According to the United States Department of State, for example, Mexico reported a 300 percent increase in such crimes between 2005 and 2011. Latin America has long been the region with the most reports of kidnapping for ransom, followed by the Asia Pacific region, Africa, and the Middle East—all popular or budding locations for business and recreational travel by American executives.
In addition to identifying the geographical threats, there are many lessons to be learned from prior incidents of kidnapping for ransom. First, by all accounts, the vast majority of kidnaping for ransom incidents (more than 60 percent of reported incidents) end with the captive’s release in exchange for the payment of ransom—approximately $2 million on average. Close to 20 percent are released without payment, with the remainder of victims dying or being killed, being rescued, or, albeit infrequently, escaping. Given the reality that the police in many high-risk countries may also be the kidnappers, many kidnappings go unreported and even fewer have official police involvement.
In response to this unique risk, individuals and entities with a global presence are looking into a specialty line of insurance coverage known as “kidnap and ransom” insurance.
Understanding Kidnap and Ransom Insurance
Kidnap and ransom insurance policies provide coverage for high-profile and high-net worth individuals, executives travelling abroad, and individuals who appear to fit one of those categories. These types of policies then obligate the insurer to pay those costs necessary to secure the safe return of an “insured person” kidnapped in a “covered territory.” These costs include, most notably, the ransom amount paid (up to policy limits) on behalf of the insured person in
exchange for his or her release.
Additionally, depending on the terms of a particular policy, kidnap and ransom coverage can provide indemnity for a variety of other expenses related to the negotiation and delivery of a ransom payment. For instance, at the policyholder’s request, many kidnap and ransom insurers will hire and dispatch experienced security consultants to coordinate the negotiation and payment of the ransom. A number of policies likewise cover the cost of hiring an interpreter, if necessary,
to facilitate negotiations with the kidnapper. Some kidnap and ransom policies also cover payments to “informants” who possess and provide information concerning the whereabouts of the kidnapped individual or the kidnapper’s identity.
Many policies also cover the costs of medical and psychiatric care for the kidnapped individual following his or her release. Kidnap and ransom policies also commonly cover travel expenses incurred by the policyholder to fly the released individual (or his or her relatives) home.
Although kidnap and ransom policies can provide broad coverage for the various
expenses associated with negotiating and delivering a ransom, these policies generally contain
various exclusions as well. Some policies bar coverage for kidnappings that take place in certain
excluded geographical regions. Others purport to exclude coverage for kidnappings planned or
facilitated by a relative or employee of the policyholder.
Common Policy Conditions
Kidnap and ransom policies also typically include a number of policy conditions, some of which can impact coverage in significant ways. Because policyholders with kidnap and ransom coverage could be attractive targets for kidnap plots if the existence of the insurance was known, many policies contain confidentiality clauses prohibiting the insured from discussing the coverage with third parties. Breach of these confidentiality provisions can result in a forfeiture of Policyholders should also expect to see certain notice-related provisions in their kidnap and ransom policies. In particular, kidnap and ransom policies commonly require the policyholder to immediately notify the insurer and local law enforcement agencies of a
kidnapping. Failure to provide prompt notice of a kidnapping can, depending on the particular policy language at issue, jeopardize coverage.
Purchasing the Right Policy
Because the scope of coverage can vary widely from policy to policy, it is important that policyholders carefully evaluate their coverage needs prior to purchasing kidnap and ransom insurance. Indeed, by keeping a few tips in mind, policyholders can avoid many typical coverage disputes and ensure that they purchase policies that suit their particular needs.
For one, when purchasing a kidnap and ransom policy, the policyholder should pay close attention to who is insured under the policy. Insured executives may also want to purchase coverage for their relatives, friends, or employees. A good rule of thumb is to purchase a policy that covers each individual for whom the policyholder would pay a ransom in the event of his or her kidnapping.
Furthermore, policyholders should make sure that their policies provide coverage in the desired geographical regions. Some policies provide worldwide coverage, whereas others exclude coverage for kidnappings taking place in certain specified geographic regions. Therefore, when purchasing a kidnap and ransom policy, policyholders should take stock of their coverage needs and select a policy that provides the desired scope of coverage.
Policyholders should also carefully consider the practical consequences of policies with stringent notice requirements. Many kidnap and ransom policies purport to void coverage if the policyholder fails to immediately provide notice of a kidnapping to both the insurer and local law enforcement agencies. Such provisions may seem relatively uncontroversial, but they can
prove problematic in instances where the kidnapper forbids the policyholder from notifying local police or other authorities. To avoid coverage disputes over the enforceability of such notice-related terms, policyholders should attempt to negotiate more favorable provisions. For instance, policies that only require immediate notice “where practicable” can give policyholders much-needed flexibility when responding to a kidnapping.
Finally, prior to purchasing kidnap and ransom coverage, policyholders should closely review all policy exclusions and other limiting terms. In some instances, policyholders may be able to negotiate more favorable terms, often without any significant increase in premium. For example, the policyholder should take into account the quality and experience of the response team or security consultants hired by and paid for by the insurer.
With the continued globalization of business and business-related travel, more executives are contemplating the purchase of kidnap and ransom coverage. Although this coverage can be a valuable asset to those living and traveling in foreign countries, policyholders must make sure that they purchase policies that meet their precise coverage needs. Then, once a policyholder settles on a particular policy, the policyholder should carefully review all terms and conditions of the policy.
While one can never be completely prepared for a kidnapping, having the right policy in place—and understanding how it works—can provide peace of mind for those individuals living and traveling abroad in high-risk regions.