What You Should Know About Kidnap & Ransom Insurance
K&R Insurance Provides Reimbursement, Not Upfront Payments
As unpleasant as it is to think about, kidnapping-for-ransom is a real concern in many parts of the world.
Each year criminals and terrorists commit an estimated 8,000 kidnappings every year and take $500 million, according to the insurer Chubb. In 2019, the U.S. State Department began warning travelers about kidnapping and hostage-taking threats in its travel advisories. As of March 2020, at least 35 countries—including Mexico, Kenya, the Philippines, and Russia—were designated as having those risks.
Luckily, you can prepare for the possibility of a traumatic event, at least somewhat. If you or your employees travel to any of these hotspots (or plan to in the future), you should consider buying kidnap and ransom (K&R) insurance. These specialized policies cover the cost of ransom and other expenses resulting from kidnapping, extortion, and related events. They can often help with crisis management and security too. Here’s a guide to how the policies work, what they cover, and how much they cost.
Key Takeaways on K&R Insurance
- Policies usually cover employees as well as their relatives, guests and travel companions.
- Coverage may extend to a wide variety of related expenses, including interest for a ransom loan, security and crisis management services, surveillance equipment, lost salary, and rehabilitation.
- Premiums may cost $400 to $3,000 per $1 million of coverage.
- Many policies require you to keep the existence of the policy confidential. This is because kidnappers and extortionists may target your business if they know you have K&R insurance.
Sources of Coverage
K&R insurance is widely available in the marketplace, including from insurers such as Chubb, AIG, Travelers and Ironshore. An insurer may write a stand-alone K&R policy or include it in a crime or package policy.
K&R policies cover costs associated with kidnappings, unlawful detentions, hijackings, and acts of extortion. To understand the differences, here are some typical definitions:
- Kidnap–Insureds are abducted or seized against their will and held captive as ransom is demanded.
- Detention–Insureds are held under duress by rogue government officials or insurgent parties .
- Hijack–Insureds are held against their will while traveling in a car, airplane, boat, etc.
- Extortion–When criminals threaten harm to employees or property, or threaten to steal trade secrets or other valuable information, if they don’t receive payment.
Insureds generally include employees, executives, and their relatives and guests.
Many K&R policies cover the ransom amount, a variety of associated expenses, and crisis management and security services. Insurers may set separate limits and retentions (similar to deductibles) for various types of coverage.
K&R policies cover the value of money, securities or other property you surrender to satisfy a ransom or extortion demand. They may even cover ransom money (or other property) that is lost or stolen during transport to the kidnappers or extortionists.
There are a myriad of expenses you could incur during or as a result of an incident. Here are some that may be covered, depending on the policy:
- Interest on a loan obtained to pay a ransom
- Fees charged by independent negotiators, public relations consultants, interpreters, and forensic analysts
- Cost of a reward paid to an informant for information that helps secure the release of a kidnap, detention or hijack victim
- Cost of necessary medical or psychiatric treatment for a kidnap, detention or hijack victim. Costs must be incurred within a specified period (such as 36 months) after the victim's release
- Cost of hiring security guards to protect the insured person
- Salary, bonus, and other compensation paid to the victim during the kidnapping, detention or hijacking and for some time (such as 45 days) after their release
- Cost of transporting the victim and his or her family members from the site of the incident to the victim's home country or place of residence
- A benefit if an insured person dies or sustains a specific type of injury, such as loss of a limb or loss of sight
- Damages, settlements, court costs, and attorneys' fees resulting from a negligence suit against your business by an insured person, or his or her heirs
A K&R policy will reimburse your business for covered expenses it has already paid. It will not pay those expenses on your behalf.
Crisis Management and Security
Because business owners would never be expected to know how to deal with kidnappers and extortionists, many K&R policies cover crisis management services. The insurer contracts a third-party that will provide these services. For instance, the Travelers policy covers services from security and risk-management firm Constellis.
When a kidnapping or other covered event occurs, an insured business notifies the security or risk consulting firm directly. Those experts jump into action, assessing the situation, and working with local authorities to negotiate a safe release of the victim.
Costs of Coverage
The amount you pay for a K&R policy depends on several factors:
- Locations of travel
- Your industry and type of operation
- Frequency and duration of your international trips
- Number of employees
- Coverages you select
You will pay more in premiums if you travel to countries where kidnappings have occurred in the past or that are experiencing political unrest. According to insurance broker A.J. Gallagher, if your business has limited foreign exposure, you might pay as little as $400 per $1 million of coverage. If your company has more exposure (more travel and locations) you’ll pay more: typically between $1,000 to $3,000 per $1 million of coverage.
You’re best off comparing quotes from several insurers. Note each policy’s coverage amounts, the types of covered expenses, and any relevant exclusions.
And if you get a policy, don’t tell anyone about it. Keeping the insurance secret is a condition of most K&R policies, and failing to meet conditions can give insurers cause to void your policy or claim.