About Kidnap and Ransom Insurance Policies

Kidnap and ransom insurance is a special type of insurance policy which some corporations and high-profile individuals purchase to protect themselves from having to pay ransom payments in the event of an abduction.

In certain developing countries, including Mexico, Colombia and Nigeria, kidnapping is fast becoming a billion-dollar-a-year industry. High-level employees of governments and multinational corporations provide tempting targets because their employers are often willing to quietly negotiate their release in exchange for cash. In some countries, the kidnappers are revolutionary political movements trying to finance their conflicts with the state; in other cases, they are simply looking to make a quick buck.

Kidnap and ransom insurance provides a way for corporations who want to do business in dangerous parts of the world to cover their employees in the field. Typically, a kidnap and ransom insurance policy does not actually oblige the insurance company to pay a ransom demand directly. Instead, the insurer simply agrees to compensate for the losses of the insured. This could include a ransom payment, the cost of a rescue effort (like paying off the local police), or medical and disability costs. Some insurance companies also provide special training on kidnapping prevention strategies or crisis response teams for their clients, or sell policies that cover many different types of extortion, including ransoms.

There are a wide range of insurance companies around the world which now provide kidnap and ransom insurance, with policies varying considerably in terms of what is covered and at what cost. Currently, Bermuda-based British insurance company Hiscox (HSX) claims to hold about two-thirds of the kidnap and ransom insurance market. Hiscox’s standard policy covers a corporation globally and provides protection against kidnapping, hijacking, extortion, and murder threats, along with a special contract for services from the Control Risks Group, a private security firm.

There are a number of problems to be wary of with respect to kidnap and ransom insurance company, according to a highly critical review published in Forbes business magazine in 2009. Some policies will not cover employees who are briefed on the details of a corporate policy before entering a danger zone, on the grounds that it might make them too willing to accept a high ransom demand. Ransom-seekers typically instruct their victims not to notify anybody, or they will murder their prisoner – but insurance companies usually demand that at least themselves, and often the police, be promptly notified of any incident before compensation will be granted. The author of that article sarcastically observed that having a bad kidnapping insurance policy “sets you up for the prospect of being covered by insurance you don’t know you have, for claims for which you can’t give notice and of having to fight over its applicability when you need it most.” Companies must therefore be careful and assertive in negotiating for kidnap and ransom insurance policies.