SPECIALTY LINES MARKETS
The need for kidnap/ransom & extortion coverage is growing
Kidnapping has become almost a "cottage industry" in some parts of the world
By Susan R.A. Honeyman
Alko Moore, the 27-year-old wife of an American businessman working in Manila, was on the way to a class at 8:30 on a May morning when a motorcycle struck her white Honda. Her driver left the vehicle to inspect the damage and as he returned, several armed men entered the car, blindfolded the occupants and kidnapped them. They were released hours later after the kidnappers contacted her husband, James Edward Moore, and received $143,000 cash and expensive imported watches as ransom.
She was luckier than Vincente Cordero III, 27, manager of Shogun Ships Co., a Philippines-based company that transports petroleum products. He was kidnapped a few days earlier at 7:30 a.m., while on a bike ride with friends. His abductors—at least six men wearing national police uniforms and armed with rifles and handguns—ignored Cordero's companions and dragged Cordero into their vehicle. As of mid-July there were no reports of his whereabouts.
There is ample evidence that the world remains a dangerous place and that kidnapping and extortion demands can victimize individuals and organizations in almost any country. As fears have grown, so has interest in the insurance industry's response: policies to protect against the monetary and human costs of such crime.
Chubb has seen a significant increase in interest in its Kidnap/Ransom and Extortion (K/R&E) policy from companies looking to expand into new markets and new countries to increase their revenue stream, according to Greg Bangs, vice president and product manager for crime, kidnap and ransom insurance, at Chubb Specialty Insurance. Even small and mid-sized companies that had not considered such coverage are starting to look at it and often purchase it as they realize their risk profile is changing.
Demand is also increasing from private individuals moving into more adventurous travel, including ecology tours of Latin America or travel to exotic places like Asia and Africa, which are now booming as destinations but are being recognized as danger zones. Some coverage is available as part of a standard travel policy, but Bangs recommends stand-alone kidnap, ransom and extortion coverage for individuals looking for more comprehensive protection, especially for those traveling to high-risk areas or traveling alone.
Bangs says that, given the broad scope of insurance coverage a customer can purchase, compared to many other types of commercial insurance, K/R&E is reasonably priced. Premiums normally range from $500 to $4,000 for a $1 million policy limit, depending on where the customer's overseas offices are located, the frequency and duration of foreign travel, and the number of employees to be covered. Nevertheless, when there is a kidnapping or an extortion threat, claims are usually first-dollar and can be high. Even when there is no claim, purchasing a policy can allow the buyer to sleep at night. Its value also rests on providing access to information that can help companies avoid or minimize the risk to their employees, and immediate access to experts to handle events when they do occur.
The policy covers some obvious expenses, including costs associated with negotiations, paying the ransom, rescuing and transporting the victim and evacuating/protecting others caught in dangerous situations—including political unrest. Even workers compensation and death benefits arising from the event are included. It also covers extortion services and demands, rewards to informants, legal liability and costs for public relations crisis management, among others.
But when that call comes in, the first need is for immediate access to experts to help guide and often take over the handling of the crisis. Insurance carriers almost always have a close relationship with one of the perhaps 10 security-response companies for that purpose.
Chubb's clients usually rely on The Ackerman Group based in Miami, Florida, whose highly experienced security consultants are focused on current dangers and know how, when and with whom to negotiate. Chubb has had a 33-year relationship with The Ackerman Group, but the carrier will pay for a client to use another consultant if they choose, Bangs says.
One thing to keep in mind is that not every kidnapping, ransom demand or extortion threat is real, Bangs says. "A lot of extortion threats are made from Mexican prisons, where prisoners bribe guards to get a cell phone and a U.S. business directory, then start at the top of the page and make call after call to U.S. companies or multinationals, threatening their products or their people unless they pay $10,000 or $20,000 or even $30,000. If they make 100 calls and one company says 'yes,' it is worthwhile," he says.
Bangs recalls many instances where his clients received one of these calls and wanted to pay the demand. Before anything was done, though, he had them speak with an Ackerman consultant, who analyzed the threat and its wording. Often they were told not to pay because it was a scam.
Cyber-extortion is also high on the list of threats. That's where a hacker anywhere in the world will contact a company, warning that he has hacked into the company's systems and now possesses vital information—usually customer financial information or health records—that he will release unless the company pays him not to do so. Again, sometimes the threat poses a real danger, and sometimes it is simply an idle threat, but it takes an expert to make that call and to negotiate for the safety of private information when it's appropriate.
When a ransom is demanded, handling the situation involves detailed knowledge of the practices of the area to make decisions that have a happy ending. In some countries, it is important not to notify local authorities because the local officials are likely to be or become complicit. Even the logistics of paying a ransom and arranging for the safe return of the kidnapping victim is tricky, and sometimes the money is stolen before it ever reaches the kidnappers. The policy provides coverage for a second ransom, if necessary.
Mexico has the highest frequency of kidnapping, says Mike Ackerman, president and CEO of Ackerman Group. "Our phone rings more often about Mexico than any other country," but most kidnappers there are seeking a quick payout and negotiations tend to be fruitful.
The most difficult negotiations are with terrorist groups like the Pakistan Taliban in Pakistan and offshoots of the Islamic extremist group Al-Qaeda in the Islamic Maghreb (AQIM) in the Sahel, the strip of West Africa involving Northern Nigeria, Niger, Mali and Mauritania. Those kidnappers are highly organized, make outrageous demands and control territory so they can hold hostages forever, says Ackerman. A group of French mine workers, abducted in September 2010, is still being held in West Africa. The ransom demand for the group is reportedly 90 million Euros.
Protecting workers from nomadic tribesmen in these semi-arid, desert areas involves mounting a major operation, which is very difficult and very expensive. Usually only those engaged in mining and oil operations find the payout big enough to warrant the risk, Ackerman says.
But it is hardly the only place.
A wide variety of problems
One U.S. multinational company had 100 people working in Egypt when the Arab Spring hit there, leaving all of them at serious risk for being injured or killed. With the airports closed, Chubb and the security consultants arranged for emergency transportation to rescue many of the employees and helped others hunker down until they could be rescued. Of course, the policy covered these expenses, says Bangs.
Two other threats looming large these days are "express kidnapping" in Latin America and "wrongful detention" in China, Bangs says.
Express kidnapping, which he termed "carjacking on steroids," usually involves an employee or traveler who comes out of a show shortly before midnight and hails an unofficial taxi. The taxi goes around the corner, and someone with a gun then jumps in and takes the victim to an ATM to withdraw the daily maximum allowed. They wait until after midnight, and force the victim to make a second withdrawal, doubling their payoff. They used to then dump the victim in the middle of nowhere, but increasingly these thugs are beating the men and raping the women, sometimes stripping them naked to make it even more difficult to get help. Medical costs that arise from this are covered.
"In China, wrongful detention is something of a national sport," Bangs says, depending on the requirement that every U.S. company seeking to do business in China needs to work with a Chinese partner. There is no problem when things go well, but if the pace of negotiations is slower than the Chinese partner wishes or if the Chinese partner is unhappy with what it is getting out of the deal, the partner may bribe local cops to put U.S. company employees under house arrest until their demands are met. Again, the cost of freeing the employees is covered.
Knowing that this coverage brings experts and funds to handle these growing threats in the insured's corner lets the policyholder worry less and sleep better.
The Ackerman Group
Despite 11 years with Central Intelligence Agency's Clandestine Services organization and 35 years heading a major security consulting organization, Mike Ackerman has never done a rescue "and I hope we never do." Hollywood depictions aside, "people buy insurance against ransom and their best shot is to pay the money and get it back from the insurer. With a rescue, the odds are no better than 50-50," he says.
Instead, Ackerman, president and CEO of The Ackerman Group, and his team of about 16 full-time professionals, dozens of subcontractors and numerous on-the-ground subcontractors use their skills to assess risk in more than 100 countries, advise clients before an abduction takes place, and handle things when a ransom or extortion demand is made.
Ackerman requires his operations staff to have at least five years of experience in intelligence, police or special operations work, so staffers tend to be former CIA, FBI and ex-military special operations people, but even this kind of training doesn't completely qualify someone to do the hands-on work the job demands. "The FBI doesn't get involved in the nitty-gritty things we do. They are more advisory," says Ackerman. "We roll up our sleeves and do everything except make the client's decisions."
He's handled more than 250 ransoms.
But the emphasis is always on prevention. Chubb recommends its clients use The Ackerman Group's RiskNet database to get an up-to-date assessment of the local political and terror situations where they do business. This analysis of public and media sources is supplemented by The Ackerman Group's local contacts, especially current and former local police and regional security officers in embassies around the world.
Chubb also suggests yearly meetings between clients and the security consultants to discuss contingency plans and protective strategies, and sometimes advanced training or even protective advance teams or escorts in high-risk situations. And if there is a crisis, clients are urged to call security consultants immediately for advice and help.
Susan R.A. Honeyman is a freelance writer based in New Haven, Connecticut., and vice president of Word Hive Communications LLC.
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