As the success rate goes up, the cost of marine kidnap and ransom insurance goes up as well

For many shipping companies operating in the Gulf of Aden (as well as 3 or 4 other regions around the globe) a marine kidnap and ransom insurance policy or maritime KnR policy is now an essential part of doing business in the region.

Last year, the pirates attacked over 110 ships in the Gulf of Aden region, and the pirates were able to capture about 40% of the ships targeted, an incredibly good percentage that will just inspire  more maritime hijacking.

Kidnappers, with the Somali pirates being the most infamous, want to secure kidnap and ransom money for hostages and they totally ignore the millions of dollars of cargo these ships carry because they can’t move the product.  Actually, they have no port that can even doc these massive ships let alone move thousands of  pounds of cargo off the ship by crane.

Maritime and marine kidnap and ransom insurance policies, provided by certain syndicates of Lloyd’s of London for example, would pay a ransom benefit to pirates (for example, up to $3,000,000 or $5,000,000) and provide expert consultation to help get hostages returned safely.

Unlike kidnappings and hostage taking in Central America for example, where the return of victims can mean small ransoms of $50,000 or less, whether there is a kidnap and ransom insurance policy or not, pirates that commandeer large ships know there is a lot more they can get from deep pockets, and often set ransom money at $3,000,000 or more.

The navy seal operation against the Maersk ship Alabama in 2009 will hopefully help to deter at least some piracy, but with many pirates collecting millions of dollars and the success rate better than robbing a 7-11, incidents will increase.

Do these four know the risks traveling in Kuwait? Is there an emergency security plan in place?

In our first blog in the “learning category” we will go over the basics of Kidnap and Ransom insurance (Kidnap and Ransom Insurance 101).  However just knowing what is in this post is enough to put your knowledge over about 80% of all others in the HR and insurance arena.  Not many have a good grasp of this important employee benefit.

Kidnap and Ransom insurance is offered by large insurance companies and Lloyd’s of London to insure global organizations and wealthy individuals and families.  The basic element is an kidnap “insurance benefit” that would be used to pay a kidnapper in the event of abduction and provide the ransom money to get the person back, but there is much more to this insurance benefit.  The other major parts of a good k&r insurance scheme is as follows:

1. Extortion Payment | demands following a specific written or verbal threat to injure, kill, or kidnap a person; damage property; contaminate products; divulge trade secrets; or destroy electronic data by computer virus.  Extortion is actually much more common than kidnap itself.
2. Wrongful Detention | Involuntary confinement by a government entity or insurgent organisation.
3. Hijack | Illegal holding under duress of a person while travelling on any aircraft, motor vehicle or water vessel.
4. Services of an independent international security company.  In the event of one of the incidents above, only a global security company will be able to mobilize individuals trained in international executive security and kidnap and ransom. 

An insurance benefit of several million dollars is really worthless without an excellent security company ready to intervene.

At this point, it's better he does not know

For employers that do have a kidnap and ransom insurance policy in place, there are requirements of the policy owners put in place by most good insurance companies like Lloyd’s of London.  The main requirement surrounds the secrecy of the policy, and exactly who in an organization can know about the existence of a kidnap and ransom insurance policy.

Good insurance companies will restrict access and knowledge to the K&R insurance policy to only a handful of individuals.  For example, if a company with expatriates puts a “flyer” in the expatriate assignment manual before each expat leaves for assignment saying “don’t forget you have $1,000,000 of kidnap and ransom insurance if you are ever abducted,” this would void most “real” kidnap insurance policies.

Although most people are not aware of this secrecy requirement, the reasons are rather obvious and are as follows:

1. The insured would become more of a target if it was public knowledge that a kidnap and ransom insurance policy was in existence.  Of course, this is more important for small to medium sized organizations.  Every potential terrorist or FARC-like organization in South America knows that companies like Exxon and Microsoft have K&R insurance, or have the ability to pay quickly.  Mega corporate employees are always targets.
2. If the abductors knew about the existence of a policy or even worse, the amount of insurance, there would be no ransom negotiation.  The kidnappers would know the exact kidnap lump sum benefit and request that exact amount with no negotiation possible.
3. The expatriate or travelling employee would immediately tell the kidnappers in the first 10 seconds of the abduction, “don’t harm me, my company can pay you $500,000 from our AIG Kidnap and Ransom insurance policy.”  As this may be good for the poor individual abducted, it would quickly have underwriters and insurance companies running for the exists and no longer accepting kidnap and ransom insurance risk.

In a large organization the knowledge of a K&R insurance plan may be limited to 5 or 56indivduals including the Director of International Human Resources, Director of Benefits, CFO, Treasurer, President, and one or two key assistants in those departments that see all emails and correspondence.

For kidnap and ransom insurance this building is still Mecca

When it comes to Kidnap and Ransom insurance policies issued on a global basis, Lloyd’s of London is still the “insurance company” that writes the most policies worldwide.  When seeking kidnap and ransom insurance quotes from Lloyd’s by an American company, 95% of the people we speak to are not aware that Lloyd’s is not an insurance company at all, but an insurance market (called the London market) that is made up of a variety of “insurance companies” inside the market called Syndicates.  People often come to us for understanding the Lloyd’s of London market. 

The Lloyd’s market has over 60 of these Syndicates.  Not all of them write kidnap and ransom insurance but several of them do.  Syndicates act as mini insurance companies and they work together to accept and bind risk.  For large insurane risks, such as the insurance on the space shuttle cargo, many LLoyd’s Syndicates may be working together taking small pieces of a much larger risk much in the same way Insurance companies use reinsurance.