Kidnap and Ransom Coverage: Market Stability Amidst Geopolitical Shifts
The market for kidnap, ransom, and extortion (KR&E) insurance coverage remains stable despite increased geopolitical tensions, according to industry experts. Existing policyholders are experiencing level or decreasing renewal rates due to an abundance of available coverage capacity. Multinational organizations (MNOs) with a global presence, and particularly those who send employees abroad, continue to be primary consumers of this type of coverage, seeking protection from the financial and physical ramifications of kidnapping and extortion.
However, evolving threat landscapes have expanded the appeal of KR&E coverage to new markets. Smaller organizations that primarily operate domestically are showing heightened interest in securing such protection.
“Coverage has traditionally been driven by foreign exposure…[but] we’ve seen increases for organizations that have very limited or even no foreign exposure but highly trafficked premises, such as health care and hospital systems, retail stores and restaurants,” said Sarah Katz, Vice President of KR&E at Victor Insurance Managers LLC, a unit of Marsh LLC.
Shifting Risks and New Buyer Interest
Small and mid-sized companies are also driven by the rise in domestic and virtual kidnapping threats. Virtual kidnapping involves threatening and seeking ransom for a person’s loved one when the targeted person has not actually been abducted.
Denise Balan, Senior Vice President and Head of Security Risks at Axa XL, notes an uptick in inquiries regarding KR&E policies and related coverage extensions. Some companies are also seeking assault coverage to protect against workplace violence and active assailants.
While active assailant and workplace violence protection is often available as a standalone policy, some insurers include limited coverage for those risks within their KR&E offerings. Jon Janes, Senior Vice President at Woodruff Sawyer & Co., notes, “The risk that’s being assumed or underwritten by insurers in this space has certainly evolved to include nontraditional KR&E events.”
Certain insurers, however, exclude workplace violence and active shooter endorsements from KR&E policies given the increased frequency and costs of claims, according to Kevin Henry, Divisional Assistant Vice President of KR&E coverage at Great American Insurance Group. Standalone policies offer broad coverage, as well as proactive preventative measures such as facility inspections and training programs.
Multinational Companies Prioritize Executive Security
According to Balan, multinational companies are more frequently requesting information about country-specific exposures.
“We’ve received a lot of calls from companies that are now making safety and security for executives a top priority,” adds Daniel Linskey, Managing Director in enterprise security management at Kroll LLC.
The uptick in interest may subsequently increase placement of KR&E coverage, but widespread market knowledge is less likely due to confidentiality restrictions surrounding the policies. According to Paul King, Senior Vice President at USI Insurance Services LLC, KR&E policies often prohibit public disclosure of the purchase.
Beyond Kidnap and Ransom: Comprehensive Protection
KR&E policies offer broader coverage than just the core risks of kidnapping and ransom. Disappearances, security evacuations, and wrongful detentions are also frequently covered. Scott Konrad, North American nonprofit practice leader at Hub International Inc., describes these policies as “a six-pack of coverages…a bundle of different types of coverage, with the common denominator inevitably being a security-related situation.”
Coverage can even be triggered by a threatening phone call, claims Konrad. Furthermore, KR&E policies can include an extensive list of named insureds including executives, domestic and international employees, and their family members. Independent contractors can also be listed as insureds, Konrad confirmed.
The supply of KR&E coverage is abundant, fueled by insurance companies’ crisis response teams, which can influence a company’s choice of insurer, says Janes. Coverage limits are also extensive, with Axa XL, for example, offering limits up to $100 million.
“Most submissions that come to us are looking for limits well under $50 million,” Balan added.
Pricing and Claims: Navigating the Landscape
Premium costs are determined by a company’s size, industry, location, and risk exposures. Konrad said he has not seen the “wild pricing or coverage swings” common to other lines. Premium fluctuations often occur when a company’s international travel increases or decreases, according to Henry.
While kidnaps and threats are the most frequent type of claims made under a KR&E policy, they are not the most expensive. “People think most ransoms are for millions of dollars. They’re not. The average ransom is much lower, but it depends on who is behind it,” said Henry. For example, the ransom demanded for a local citizen might be in the low thousands, and not millions.
KR&E policies also cover express kidnappings, as well as child abduction coverage for daycare facilities. Express kidnappings tend to occur in Latin America where an individual is abducted off the street and driven to ATMs to withdraw large amounts of cash.
While kidnaps and threats tend to be relatively short-lived, typically resolved within days or weeks, wrongful detentions are more costly and complex because victims may be used as political pawns by foreign governments for longer periods. Resolutions can take years, and KR&E policies cover incident-related costs.
“We’re likely to see more wrongful detention claims, and that’s going to be driven by the geopolitical trend worldwide of becoming a bit more aggressive,” Ms. Balan said.
Exclusions: The Boundaries of Coverage
KR&E insurers are increasingly excluding cyber risks and ransomware events. Balan said, “We used to provide cyber extortion cover years ago, but there was such adverse loss development that we now leave those exposures to the cyber team, who provide focused expertise on the underwriting of those exposures.”
Some insurers are also excluding coverage for certain countries or charging higher premiums. “We are seeing, selectively, the application of some country exclusions,” Konrad stated.
Disputes rarely arise when a claim triggers a KR&E policy. According to Lorelie Masters, an insurance recovery partner at Hunton Andrews Kurth LLP, her firm focuses on cooperative resolutions with insurance providers. Claims are characterized by their severity, but not their frequency.
Henry notes, “Most companies buy a policy, and they never need it, thankfully.”
Minimizing Risk: Proactive Measures for International Travel
Experts emphasize the importance of proactive measures to reduce the risk of abduction or wrongful detention when traveling abroad. Awareness of the surroundings and avoiding drawing undue attention are critical.
Knowing your surroundings and not drawing attention to yourself can help reduce the risk of such incidents. In some countries, holding a U.S. passport can increase the likelihood of being targeted by parties with political motives.
“Some of the most expensive losses are detentions because the duration can extend for a long period of time, and there isn’t the leverage of a ransom in the negotiation process. Those are the type of incidents that can last for years,” says Sarah Katz.
Advanced training and review of security risk reports prior to travel are effective. Enrolling in the U.S. State Department Smart Traveler Program is recommended for providing U.S. citizens with travel advisories, and to facilitate contact from the embassy during an emergency. Dressing appropriately is important.
“You don’t want to have the trappings of wealth if you can prevent it, and you want to stay where you should be staying,” said Daniel Linskey. He also recommends using reputable transportation companies, as well as ensuring that employees limit the data on their smartphones.
Balan suggests, “We recommend that people don’t travel with site history and potentially sensitive information on their smartphones into certain countries. Take a burner phone, don’t take a smartphone.”
