Kidnap & Ransom: a clear and present danger. (Risk Management).

Most dismiss kidnap as the stuff of thriller novels and Hollywood movies. Yet, each year, dozens of "ordinary" businessmen and businesswomen discover -- to their great personal and financial cost -- that this is far from the case. Kidnapping is rapidly becoming big business.

Worldwide incidents have reached an all-time high, at an estimated cost to the global economy of more than $500 million a year in ransoms alone. Since the majority of incidents go unreported, these figures can only be estimates. What is clear, is that the number of kidnappings increases each year, and is now thought by experts to be over 30,000 a year.

Colombia -- the current "hot spot" of the world -- accounts for 50 percent of the world's kidnaps. Other high-risk areas include the former USSR, the Philippines, Mexico, Nigeria, Ecuador and Brazil. However, over the last year, incidents have occurred in popular business destinations such as South Africa, Hong Kong and Bangladesh. Also, the U.S.-led war on terror increases the likelihood of politically motivated kidnaps.

The rise of "tiger kidnaps" poses a particular concern to the U.S. and Western European business communities. Named for the speed at which these events occur, tiger kidnappings involve coercing an employee into robbing his or her employer by holding their family hostage. While still fairly uncommon, these episodes can severely harm employees and employers, psychologically and financially.

The cost of kidnap

Kidnapping costs can range from a few hundred thousand dollars to several million dollars. In a recent case in Ecuador, kidnappers demanded an alleged $13 million ransom for the release of seven western oil executives working for a U.S. consultancy. Ransom costs -- coupled with the cost of security consultants, medical, travel, legal and accommodation expenses -- can have a profound financial impact. Moreover, corporations that mishandle an employee's abduction could face expensive litigation.

And, indeed, the consequences of kidnap are not confined to the financial realm. Even the most robust of employees may suffer emotional stress that could last many years.

Who Is At Risk?

Businesses with executives traveling or based overseas face the risk of kidnap, although the level of risk will depend to a large extent on the destination. At home, corporations with high-net-worth executives, as well as financial institutions and other likely targets of tiger kidnappers, should review their insurance arrangements.

Protecting Your Employees and Your Business

The best products on the market blend service and insurance, and combine education and prevention, crisis management and a comprehensive insurance package. Designed to reduce the likelihood of an incident arising, education and prevention services ideally should include access to a country information database on kidnap exposures, risk management advice and training programs. While kidnap risk can be reduced by careful prevention measures, it cannot be eliminated completely. Crisis management support increases the likelihood of a positive outcome by offering access to 24-hour hotlines, professional negotiators and consultants.

While these services primarily protect employees, Kidnap, Ransom & Extortion coverage is designed to protect a corporation's financial assets. A comprehensive insurance program should cover the core risks of kidnap, extortion and associated expenses, as well as the corporation's legal liability for acts or omissions arising from an insured kidnapping incident.

John Ryder ([e-mail]) is Worldwide Product Leader, Special Risks, in Royal & SunAlliance's Professional & Financial Risk department. RSA USA is part of London-based Royal & SunAlliance Insurance Group plc.