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Ground control: kidnap and ransom clients seek insurers with top-flight response firms to protect key personnel.

Have clients who purchase kidnap and ransom insurance become more sophisticated?

Over the years, as kidnap and ransom insurance has evolved, it's gone from a niche product for international business travelers and the very wealthy to essential coverage for all kinds of organizations. Along the way, K&R buyers have become more educated and learned that the quality of their insurance company's on-the-ground response firm is a key consideration.

That may explain what happened when a number of carriers changed their response firm partners starting in 2012. It appears that at least some of these carriers were surprised by what happened next. When clients learned about the change, some ended their relationships with their insurers, opting instead to either follow their response firm to another carrier or align themselves with a carrier that has a long and established exclusive history with its response firm.

Brokers report seeing this happen with multiple clients and say their clients believed that if they or someone in their organization faced a serious threat or life-and-death event, such as extortion or kidnapping, the quality of the response firm would be a decisive factor in how the situation played out.

Specifically, they wanted the backing of a firm that had the resources and expertise needed to achieve the best possible outcome. This is especially true when considering some of the incidents a response firm may need to handle, such as a threat to, or evacuation or disappearance of an insured.

Clients also appear to better understand the important role response firms play in providing security protocols and risk management tips and tools to help them stay out of harm's way and prepare them for adverse scenarios they could encounter.

There are a number of reasons a carrier might switch response firms. It may be looking for different capabilities or pricing, or it may have been displeased with the response firm's performance during a particular event. In the recent cases, it appears that carriers were motivated, at least in part, by what they see as the biggest K&R risks for the future.

Some carriers have predicted that land-based kidnappings and other events covered by K&R are on the decline while maritime piracy is on the rise. As a result, some carriers are opting to drop a response firm that has expertise with land-based events in favor of one they see as more capable of mounting a response to piracy.

These predictions aren't always borne out by data, however, and some K&R professionals believe just the opposite: that land-based events are on the upswing and piracy is likely to become less prevalent. This is evident through the increase in the number of kidnappings seen globally in places like Mexico, Nigeria and Venezuela, and a decrease in the number of piracy incidents due to ships, now armed, using citadels and evasive maneuvers, thereby forcing pirates to abandon their attempts.

One thing is clear, however: Clients want to feel confident that their response firm is top-notch and brokers want to be sure they are offering the best possible recommendations. Among other requirements, a good response firm has people who speak the local language and understand the risks, customs and practices of a particular region.

They need to know the economic, political and social fabric of the places where the insureds are living, working, traveling, studying or touring. Ideally, the response firm will be familiar enough with the locale and its people to be able to identify early warning signs of a crisis about to erupt, such as a coup or elections that have the potential to become violent.

The reality is that criminal hot spots are changing all the time. Areas that were once considered extremely dangerous are now much safer. On the flip side, an area that seems peaceful could turn violent at any time. High-quality response firms stay a step ahead.

These firms also have a clear picture of the criminal gangs and other organizations operating in a region. An insured, for example, might be targeted for extortion and not know if the threat is serious or credible.

Increasingly, brokers and buyers of K&R coverage recognize that if a serious and complex problem arises, the outcome is almost entirely dependent on the resources and skills of the response firm. That lesson seems to have gotten out to everyone involved and is setting expectations for carriers as they make decisions about their response firm partners.

Key Points

* The Situation: Clients buying kidnap and ransom insurance have become more selective in choosing companies with effective response firms to handle incidents.

* The Back Story: Whether K&R will continue to involve mostly piracy-based events or switch to more land-based episodes is a matter of debate.

* Watch For: Insurers to continue to consolidate their use of top-notch response firms to resolve incidents in global hot spots.

Rapid Response

Policyholders that want to determine the qualifications of different response firms should seek answers to a range of questions, such as:

* How much direct experience has the firm had with the types of risks we're likely to encounter?

* Has the firm been successful with similar situations in a particular area?

* Does the firm have strong negotiators to call on if there is a kidnapping?

* How are the response firm's personnel trained?

* Are these personnel ex-military or do they have other specialized training?

The answers to these questions will help to distinguish true crisis response firms from those that offer ordinary, limited security, such as acting as armed guards to protect individuals or property. People's lives and well-being should not be at risk while the insurer and the response firm work out the inevitable kinks and communication gaps that can occur in a new relationship.

Contributor Jeremy Lang is senior vice president and manager of U.S. Kidnap and Ransom for Hiscox USA. He may be reached at bestreview@ambest.com
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Title Annotation:Property/Casualty
Author:Lang, Jeremy
Publication:Best's Review
Date:Jul 1, 2013
Words:980
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