By Steve Tuckey
The 55-day kidnapping, ransom, and ultimately murder drama of former Italian Prime Minister Aldo Moro riveted the world in 1978. It was political in nature and the drama included rumors that Pope Paul VI offered himself for a hostage swap.
Contrast that event with the estimated 5,000 to 7,000 so-called "express kidnappings" that were said to take place in Mexico alone last year, it is not difficult to see how the kidnapping and ransom world has changed over the decades, leading to great challenges in underwriting the risk.
Express kidnappings are not really kidnappings in the traditional sense because no demand is made upon a third party. They are more akin to regular street muggings, but with some element of detention with the bad guys taking victims to ATMs for cash or back to the victim's hotel room to steal their valuables.
Express kidnapping coverage has also become a critical component of kidnap and ransom coverage today, either in a base policy, or a manuscript form or as an endorsement.
Such crimes by street thugs are becoming increasingly brutal, so the loss goes beyond monetary to also involve medical and counseling expenses, said Greg Bangs, vice president of Warren, N.J.-based Chubb. "What we are seeing now is that they are brutally beating the men and savagely raping the women sometimes," he said.
Often, clients fail to report these crimes because of the strong possibility that law enforcement officials could be part of the network conducting the crimes. "In Mexico, official estimates are that about half the express kidnappings are conducted by law enforcement officials," he said. But Bangs stressed that no police report is required to cover an insurance loss in this case.
As a result of all of the new threats, Bangs estimates about 80 percent of the Fortune 500 companies purchase this coverage in some form. "And we are also now seeing the kind of company, say a small manufacturing firm in Iowa, buy this for the first time," he said. The companies are buying this because of the all these new threats arising just from business travel, in addition to operating a facility overseas.
TRADITIONAL KIDNAPPING STILL A RISK
Traditional kidnappings with ransom demands made upon a third party have by no means disappeared. Theana Iordanou, New York-based vice president for Allied World Assurance Company, said that about 30,000 such incidents are said to occur each year. "But reliable statistics are hard to come by since only about 1 in 10 are said to be reported," she said.
While kidnappings may have started out as political in nature, such as the Moro incident in which the demand was release of political prisoners, Bangs said that groups that had once styled themselves as having political goals have now come to realize how much money can be made from kidnapping.
Latin America remains a hot spot for the crime. But since the Sept. 11 attacks and the subsequent wars in Iraq and Afghanistan, such events have become a more global occurrence with networks such as Al Qaeda branching out.
Bangs said the Sahel region of Africa including the countries of Niger, Malawi and Mauritania have become kidnapping hotspots. The oil and gas industries are facing the brunt of these attacks because of the perception that energy companies are exploiting a nation's wealth for their own benefit.
In addition, nongovernmental organizations and media companies are attractive targets; as well as companies that engage in controversial practices such as animal testing that may evoke animal rights protests. Bangs said that policies have evolved generally from named individuals to named categories of people that can include spouses, offspring and parents of corporate employees.
Tracie Thompson, who heads the kidnap and ransom unit of Chartis, said her company offers a base policy, but then tailors it to the individual needs of the client. "That is why it is important that we have the knowledge of the types of risks that occur within each country because they do differ," she said.
"Countries like Nigeria, Mexico and Pakistan where kidnapping occurs and is continuing to increase are of concern; additionally the types of kidnaps in each of these countries can differ greatly in duration, targeted victims and outcomes," she said.
"Wherever there is an absence of central control, that is fertile grounds for kidnapping," said Iordanou.
Extortion crimes have also come under some coverage, including cyberthreats that involve hacking into computers to steal confidential data with the aim of releasing it online unless a ransom is paid. "And here there can be some overlap with cyberperils policies," said Bangs.
Kidnap and ransom carriers engage crisis response consultants to conduct pre-event training, and to handle the negotiations after the event. Pre-event training could include, for example, warning both company expatriates and business travelers to avoid hailing cabs on the street in Mexico, which could end up in disaster.
"One of the major trends is that companies have become more mindful of their duty of care," said Iordanou.
The British Parliament's passage of the Corporate Manslaughter Act in 2007 created a cause of action for companies that send employees out to dangerous areas without adequate warning or protection. The legislation has had a global impact since so many companies have offices in the United Kingdom.
Tim Crockett, CEO of Pioneer Consulting LLC, which provides, security, risk and training solutions, sees a lot of change happening in his niche.
"The industry would like to shroud it in a lot of mystery ? whereas the practicalities are very different from that," he said. "By and large, you are dealing with professional gangs and professional groups so it becomes almost like any other business negotiation."
Managing the dynamics of the victimized company is where the response consultant really proves his worth, he said.
Technology today plays an important role for good and bad. "A lot of information is going over the Internet where the bad guys can see where these potential targets are. Kidnappers are adept at the use of the Net and this has led to more extortion," said Iordanou.
Crockett, based in Atlanta, said technology can also be a boon, particularly in the area of digital voice technology that gives crisis responders a vital tool in trying to figure out if a bad guy is lying when he says he has a victim. "In Iraq, we once had four groups saying they had [the same] person. If we had this technology then we would have been better able to figure out who was lying," he said.
Sarah Katz, Washington, D.C., area based assistant vice president for managing general underwriter Victor O. Schinnerer & Co., said kidnap and ransom is generally offered along with other management liability products such directors' and officers' and employment practices liability coverage, where the market has been soft in the past few years.
"But it has started to harden as we have seen increased claims as we have broadened the coverage," she said.
Among popular new endorsements, in addition to express kidnapping, are business interruption and security evacuation, particularly in the light of the Arab Spring events last year.
While a government order is not needed to trigger the coverage, there has to be a consensus among the insured, insurer and crisis response team that events warrant such a move for the coverage to be honored, which can include assistance in getting transportation if that is an issue because of the conditions.
About 20 percent of Katz's book of business consists of personal lines coverage for clients such as freelance journalists, mission workers or high net worth families whose members may be travelling in dicey areas. "That is about the toughest class to write," she said. "We need a lot of details to make sure the person is going to the right places before we feel safe in covering it."
STEVE TUCKEY has written on insurance issues for a decade for several national media outlets. He can be reached at firstname.lastname@example.org.
March 1, 2012
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