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Kidnap and Ransom Insurance

Kidnap and Ransom Insurance

Kidnap and Ransom insurance is meant to guard people as well as companies operating in high-risk areas around the world.  Locations most often named in policies include Mexico, Venezuela, Haiti and Nigeria, and certain other countries in Latin America.

Private corporations pay millions of dollars in ransom money every year and scores of insurance companies sell kidnap and ransom insurance policies to reimburse those entities for ransom payments.  An entire criminal industry surrounds the extortion of multinational corporations through kidnap for ransom – a criminal industry that insurance companies are financing by paying ransoms to hostage takers in direct opposition to US government policy.

Seventy one percent of the kidnapping victims were male.  Sixy nine percent of the victims were considered middle class.  These victims were shop owners, students and mid-level professionals.  Security intelligence and other research into the kidnap-for-ransom industry in Mexico have found that organised crime groups are now targeting these middle- class workers in an attempt to expand the number of potential targets.  The kidnappers charge a lower ransom demand, usually around $7, 669 (100, 000 Mexican Pesos), but are able to target a greater number of people.

Between 2007 and 2012 Senior military officers with the Eritrea’s military kidnapped and held for ransom about 30, 000 children between the ages of 16 and 17.  All students in Eritrea are required to serve at a military camp in order to graduate from high school.  The officers would call the victims’ family to demand a ransom payment of $7, 500 in order to release the victim.  If the family were unable to pay the ransom demand, the children would be sold to Bedouin traffickers.  Researchers studying kidnap and ransom at Tilburg University in the Netherlands estimated that about $600 million has been paid out in kidnap and ransom money to the military.

Kidnap and Ransom insurance policies cover the perils of kidnap, extortion, wrongful detention and hijacking.  Kidnap and Ransom policies are indemnity policies- they reimburse a loss incurred by the insured.  The policies do not pay ransom on the behalf of the insured.  Typically, the insured must first pay the ransom, thus incurring the loss, and then seek reimbursement under the policy.

Losses typically reimbursed by Kidnap and Ransom insurance include:

1.  Ransom monies – Money paid or lost due to kidnapping.

2.  Transit/Delivery – Loss due to destruction, disappearance, confiscation or wrongful appropriation of ransom monies being delivered to a covered kidnapping or extortion.

3.  Accidental Death or Dismemberment – Death or permanent physical disablement occurring during a kidnapping.

4.  Judgements and Legal Liability – Cost resulting from any claim or suit brought by an insured person against the insured.

5.  Additional expenses – Medical care, PR Counsel, wage and salary replacement, relocation and job retraining, and other expenses related to a kidnapping incident.

Intended Audience:

The policies may be written to cover high profile families, non-governmental organisations and multinational organisations.  Some policies include kidnap prevention training.

Underwriting Considerations:

The major factors insurance underwriters weigh when considering a kidnap and ransom policy include the country of residence of the insured, the type of industry of the insured, revenue of the insured, and the travel patterns of any employees who may be covered in the policy.

Problems with Kidnap and Ransom Insurance:

One of the known paradoxes of Kidnap and Ransom Insurance policies is that those who have them are often not aware, as it can be provided by an employer hoping to protect the company and its assets.  It is believed that an employee with knowledge of his K & R policy might begin to act differently, or even collude in his own kidnap for fraudulent purposes.

Kidnapping in the US;

The risk of kidnap in the US and Canada remains relatively low, and the incidents which do occur are largely a by-product of other crime, including robbery and spousal abuse, or child custody disputes.  The threat of kidnap in North America is heightened by the operations of the violent drug cartels in neighbouring Mexico.  In line with this, the US border states of Arizona, New Mexico, California and Texas are reported to be the most affected by the “spillover”, due to their geographical proximity and the fact that drugs are trafficked directly into these states.

Reports in 2012 highlighted the latest area to be exploited by cartels to facilitate their operations along the borders:  the fracking boom in Texas. According to reports, cartels are taking advantage of activity surrounding the Eagle Ford Shale Play by stealing lorries belonging to energy companies, bribing truck drivers and contractors and possibly even “cloning” vehicles to resemble company lorries, all used to transport drugs.  In addition to this, the new roads which have emerged along the oil and gas fields are “inadvertently” circumventing the US border patrol’s highway checkpoints.  Cartel operations in the vicinity of the US border have previously led to a surge in reports of kidnaps, as well as extortion, violent home invasion, and also murders, and with cartels moving further into Texas, there is a substantial risk that there will be a further increase in such criminal activity in the state.