Kidnap and ransom risk on the rise

It may have been perceived that the risk of kidnapping fell as a result of the pandemic, lockdowns and the associated reduction in travel. But in fact kidnapping for ransom has been on the increase in recent years.

In its latest report on kidnap for ransom, security consultants Control Risks pointed to the upward trajectory in global kidnapping rates witnessed since 2019, underpinned by socioeconomic disparities, under-resourced law enforcement agencies and weak judiciaries. It also noted that the average global ransom demand increased from $259,913 in 2019 to $368,901 in 2021, a 43% increase, and Control Risks said it expects ransom demands to rise at “super-normal rates”.

In its report Insurance Marketplace Realities 2023, WTW says that as restrictions and lockdowns have eased, the incidence of kidnap activity has returned to pre-Covid-19 levels in several countries.

“While the decline in international travel has led to a perceived reduction in risk, our data shows an increase in the numbers of local nationals kidnapped. Moreover, criminals have continued to invest in schemes, such as virtual kidnaps (an alleged kidnap has occurred with a quick ransom), to exploit the current environment and maintain a cashflow to fund further illicit operations,” says WTW.

Demand for K&R insurance
Kidnap and ransom insurance is an important but relatively niche product that usually sits within special contingency risks or security risks, which include kidnap, extortion, hijack and detention. Demand for kidnap and ransom insurance fell during the pandemic, but insurers and brokers are now seeing an increase in demand, particularly with the return to business travel.

Grace Tricker, from Miller’s accident and health team, says demand is increasing but notes that selling to new customers can be challenging, especially if they have little to no exposure in current hot spots.

“Many clients still request cover for particular projects or trips to ‘high risk areas’– which while absolutely necessary shouldn’t be mitigated in isolation,” she says. “The responsibility falls to the brokers to work with insurers to educate and update clients on the breadth and variety of cover that is available in the security risks market. This type of insurance should be a board level purchase that all international organisations are at least considering.”

She explains that the products are designed to cover all employees on a global basis 24 hours a day, which also extends to cover all family members of employees. “An employer has both a moral (and sometimes legal) duty of care to ensure the necessary safety and security procedures are in place to keep their staff safe. Implementing a security risks insurance policy guarantees priority access to world-leading crisis management response consultants. The response consultants will assist and advise in the event of an incident – which certainly helps an organisation demonstrate that their duty of care obligations are at the forefront of their considerations,” says Tricker.

An important, and some would say most valuable, part of kidnap and ransom insurance is the provision of access to crisis response consultants on an unlimited cost to the client basis. Christopher Arehart, first party product manager, North America Financial Lines, Chubb, says consultancy, along with the proven claims capability of an insurance carrier, is key to the product. “It is simply not sufficient for an insurer to choose to cover these events and draft cover to do so. They must also be able to provide an immediate, round-the-clock response anywhere in the world and have real world experience of negotiating the safe return of a hostage.”

As the world faces economic downturn following the impact of the pandemic and lockdowns, together with war in Ukraine, there is likely to be increased security threats and higher rates of criminality globally, which may see a growing kidnap and ransom threat.

Tricker notes that there is a misconception that the market has been trying to divert for years – that the risk is only a kidnap for ransom. “While we appreciate that the risk of kidnap will always be a key driver for buyers, it’s vital that clients are aware of the broad range of risks that the product can help to mitigate. Globally, we’re facing a crisis of economic and political instability that will naturally complicate a company’s risk exposure. This will also increase opportunistic criminal activity, which makes this global cover as relevant now as ever before,” she says.

K&R hotspots
As for where the kidnap and ransom ‘hotspots’ are, Dan Holloway, head of management liability, Chubb Overseas General, says: “The risk of kidnapping and extortion is fluid and isn’t tied directly to a specific country or territory. Today’s vacation hot spot may become tomorrow’s kidnapping hot spot. Rather, it is the balance of rewards to kidnappers for undertaking the crime and the risks of getting caught and prosecution that drive criminal behaviour. Like any other business, kidnapping flourishes in areas where the risks are outweighed by the reward. Places where the risks are minimal and the rewards are high see rates of kidnapping and extortion that far exceed those where traditional policing and judiciary are competent and effective.”

Nevertheless, there are current hotspots, and Tricker says territories to be aware of include:

• Central & South America, Caribbean: Mexico, Honduras, Venezuela, Haiti, and Colombia;
• Africa: Libya, Niger, Nigeria, Mali, Burkino Faso, Sudan, South Sudan, DRC, Somalia, Egypt, South Africa, Mozambique, CAR, Côte d’Ivoire, and Cameroon;
• Middle East: Yemen, Syria, and Iraq;
• Central & South Asia: India, Pakistan, Afghanistan, and Philippines.

But is the risk greater for those working on long-term placements or those travelling regularly for business? “The primary risk factor for kidnapping is the location of employees based overseas,” says Holloway. “Cursory travel to high-risk areas is a secondary exposure, as for the most part kidnappers don’t have sufficient time to identify and set up surveillance on a potential target before the individual leaves the country. We certainly see risk increasing when employees travel more frequently than those who seldom travel, as well as those who travel for extended periods of time (expats and short-term contract workers). In certain high-risk areas (those with open hostilities toward outsiders) even limited travel can become problematic.”

Tricker agrees, noting that generally long-term placements or local nationals are at much higher risk than business travellers (foreign nationals). “It should be noted though that in the current economic climate, criminal groups may be more inclined to take a higher risk by kidnapping a foreign national where it is perceived a higher ransom amount could be paid. This highlights the importance of organisations purchasing a policy on an all employee basis to ensure all staff (whether travellers or not) are covered for such events,” she says.

Insurance market
As for the market itself, it has largely, thus far, remained immune from the extremes of the hard market seen in many other lines of business. Chubb’s Christopher Arehart says: “The K&R policy has always been competitively priced and has not followed the recent hard market rates we saw in other financial lines offerings. However, rates and terms have responded to world events, such as the situation in Ukraine and other combat zones. Capacity is sufficient.”

Tricker says while most of the insurance market has been increasing rates due to the  challenging risk environment, the K&R markets have remained relatively stable. “There is certainly suggestion that rate increases are on the horizon, and in some cases already happening. While this is a reality, the continued availability of capacity in this specialised field will keep competition levels high and restrict any significant rate movements,” she adds.