In this era of globalization, when U.S. companies are launching operations anywhere from Rio to Shanghai, doing business on some foreign soils can be downright dangerous.
In Colombia, rebel groups have spirited off local and foreign executives--or their family members--at the rate of more than two a day, holding them captive for weeks or even months until loved ones or employers pay a hefty ransom. In 1998 in Chechnya, formerly part of the Soviet Union, three foreign engineers were kidnapped for ransom, then beheaded. And in the Philippines, Muslim guerrillas overran a Malaysian diving resort last year, snatching 21 foreigners.
Multinational companies operating in these and other risky locales usually make sure that their employees are briefed on safety measures and may even provide bodyguards and armored cars for top executives. And increasingly, these companies are taking out kidnap and ransom insurance policies that often include an important benefit: If an abduction occurs, the policyholder is guaranteed the assistance of professionals--former FBI, intelligence, military and law enforcement personnel--who are experienced in dealing with kidnappers.
"Kidnap/ransom and extortion coverage has helped corporations grow internationally by allowing them a vehicle to transfer part of the risk they assume in doing business abroad," said Barry Mansour, crime insurance underwriting manager, assistant vice president, for Chubb Executive Risk, which has been writing this coverage since 1974. "We believe that terrorism is a terrifying fact of life that corporations can certainly manage."
Incidents on the Rise
Global kidnappings for ransom reached a new peak in 1999, said Hiscox plc's Hiscox Group, a London insurer. Hiscox said there were 1,789 kidnappings for ransom reported worldwide, an increase of 6% from the previous high of 1,690 in 1998. Ninety-two percent of the 1999 events occurred in one of the 10 highest-risk countries, Hiscox said. The Insurance Information Institute notes that annual kidnapping totals more than doubled from 830 in 1995 to 1,728 in 1999.
As more companies gain footholds abroad, buying this coverage makes sense, insurers say "Years ago, it used to be just the largest Fortune 500 companies that would take out these umbrella kidnap/ransom policies," said Albert M. VanWagenen, senior vice president, kidnap and ransom, Professional Indemnity Agency Inc., Mount Kisco, N.Y, a managing underwriter for Lloyd's. "But in the last decade, we've seen tremendous change. Now any corporation, of any size, wants to purchase this."
Still, the Insurance Information Institute estimates that only 60% of Fortune 500 companies and far fewer smaller companies currently carry kidnap and ransom insurance for their employees.
American International Group has been selling this coverage since the mid-1970s, said Jean McDermott-Lucey, vice president of crisis management for American International Underwriters, AIG's international property/casualty organization. "As companies become more global, executives and other individuals from these companies travel on a wider basis," she said. "They're not in Kansas anymore. They don't necessarily know how to behave. The sheer volume of people traveling overseas puts more people at risk."
Changes in market share also have fueled opportunities for growth. Property/casualty insurers Reliance Group and Frontier Insurance Group, once active writers of kidnap and ransom, have gone into sell-off mode. The market pullout of Ace, the former Cigna, also has left a gap that other insurers have rushed in to fill, said Rob Davies, senior special risks underwriter at Hiscox. "All are seeing an increase," he added, noting that Hiscox had an increase of about 12.5% in kidnap/ransom writing in 2000.
"We've seen growth," agreed George Biancardi, senior vice president of Gulf Insurance Group, which entered this market about four years ago at the suggestion of Hiscox, one of its partners. Biancardi attributes this growth more to what's been happening within the market than to perceived exposure. "However, I've seen growth in exposure, too, in the Philippines, the Far East, Latin America," he said. In Latin America, for example, there are cross-border kidnappings where one group does the kidnapping and sells the hostage to another group, he said.
PIA, which has been offering this coverage since 1980, said that early on it was handling an average of one claim a month. Recently, however, the monthly average is closer to three or four claims, VanWagenen said. Among PIA's 5,000-plus policyholders are more than 100 Fortune 500 companies, several small to midsize manufacturing and service firms based in the United States and abroad, particularly in Latin America, and many financial institutions of all sizes. Many of PIA's policies have been purchased by individual families, including prominent figures from the world of sports and entertainment, the company said.
While insurers affirm that this highly specialized market is expanding, most are reluctant to cite figures because, by its very nature, kidnap and ransom insurance is cloaked in confidentiality "Companies are very nervous about revealing how this works and giving ammunition to the bad guys," Davies said. He estimated that Hiscox, which has been writing this coverage for about 20 years, currently has the lion's share, or 70%, of what he thinks is a 120 million market. Hiscox, AIG, Chubb Executive Risk, PIA, Lloyd's and Gulf Insurance Group are the primary writers of kidnap and ransom coverage.
In fidelity or crime insurance, carriers will report their writings to the Surety Association of America, Mansour said. But with kidnap, ransom and extortion insurance, there is no such reporting agency "When you stop to think about it, the safety of our insureds living and traveling abroad is really the heart of what we get at," Mansour said. "And one of the things that we ask our clients not to do is to share the fact, even with their own employees, that they're purchasing a policy." Knowing that he or she is covered by this insurance, and somehow letting it slip in conversation, could make an employee an inviting target, they reason. To this end, these policies will often include a clause stating that if information about the coverage is disclosed, publicly or privately, it may be grounds for rescission.
Colombia and Mexico top the list as the most active locales for kidnappers these days. In Colombia, the abductions are primarily driven by guerrilla activities. "Estimates are all over the map," Mansour said. "Local agencies put the number of kidnappings at around 3,000 in 1999, but Hiscox recorded 972 for Colombia that year."
In fact, in its 1999 survey, Hiscox cited Latin America as the most likely region in which to be kidnapped, with an estimated 1,449 abductions.
"This is a cottage industry and a growth industry," said McDermott-Lucey. She noted that kidnappers in Latin America practice their own version of division of labor, with one group skilled in staking out the victim, another in making the actual snatch, and yet another in holding the hostage and negotiating the ransom.
Generally, those who need to be more watchful are not the occasional visitors but the people who live and work in a problematic country, said McDermott-Lucey. Over an extended period, would-be kidnappers can more easily conduct surveillance on their intended victims, chart the route they take going back and forth to work and check out just how much security surrounds them, she said.
From carrier to carrier, basic coverage under the kidnap/ransom an extortion policies is fairly similar. Gulf Insurance Group's policy for example can provide more than $60 million limit, with no deductible. Coverage includes the paying of ransom following a kidnapping; a threat to kill, injure or abduct; a threat to damage propety; a threat to contaminate products; threat to divulge trade secrets; or threat to introduce a computer virus.
PIA, which says it has the broadest policy in the industry, can offer capacity of up to $75 million for any one loss due to a kidnap for ransom, or for extortion and detention. The policy also will reimburse money surrendered as a ransom or extortion payment and pay back expenses incurred in connection with a claim, such as victim's salary, travel and lodging costs, legal fees and judgments.
What decidedly differentiates these policies, however, is the carrier's alliance with a particular security consulting firm, whose services are provided free to the policyholder. AIG uses Kroll Associates, New York; Hiscox works with Control Risks Group, London; and PIA is aligned with Corporate Risk International. One exception is Chubb Executive Risk, which advises potential customers that it has crisis consultant Mike Ackerman, a former CIA agent and founder of the Ackerman Group of Miami, on retainer, but leaves the choice up to them. "We're aligned with Ackerman, but we give clients flexibility," Mansour said. "The competition doesn't give clients the choice." If clients decide to go with Ackerman, and usually they will, they must pay his daily expenses.
AIG's McDermott-Lucey said in selling this insurance her emphasis isn't on the policy itself but the knowledge "that you can have an experienced consultant at your side within 24 hours." Even before a crisis strikes "Kroll helps clients assess risks," she said. "They will consult with companies or families. Using that as a preventative is our strongest marketing tool." Since AIG's involvement with Kroll, 98% of the kidnap victims have been released unharmed and no one has been killed, McDermott-Lucey said.
Biancardi said that a big reason Gulf took on this line was the partnership with Hiscox, which provided ready access to Control Risks. Policyholders are buying this coverage "to get expertise," Biancardi said. "In cases of threats, Control Risks helps minimize exposure and tracks down where the threat came from." He said that in one recent case, an insured was threatened while in Russia. Thanks to the work of the security firm, the culprits were arrested, Biancardi said.
He said he is disturbed by some competing policies that tell policyholders they are free to hire any consultant if a kidnapping occurs. That could leave the policyholder--and the kidnap victim--in the lurch, he argued. "The problem is, you come up against an incident and you find you do not have a contract with, say, Control Risks or a similar firm," Biancardi said. "The first question Control Risks will ask is, 'What is your policy number?"'
VanWagenen of PTA said his company's market thrust "is that the policy is great, but the most important part is the crisis-management service accessible if you have a problem."
Sean M. McWeeney, a 24-year veteran of the FBI, is president of that service, Corporate Risk International. He said his firm's role is "to work with the family and the company, to act as negotiator and/or hand over the ransom."
The firm has staff on site in nearly every major country in the world, he said. All employees in the United States are former FBI officials, while those abroad, for example in Colombia, have prior law-enforcement experience.
"In a good many of these countries, we work with no notification to law entities," McWeeney said. If there is any suspicion that local police could have links to the kidnappers, "we don't involve them. We utilize the FBI and the U.S. embassy," he said.
But in one recent case, local officials were more than merely cooperative. An American engineer working in Venezuela was on vacation there when Colombian guerrillas took over the small plane he was piloting and flew him into Colombia. "It gives you an idea of the sophistication of it all--they had a landing strip," McWeeney said. "They also used cell phones to negotiate."
Corporate Risk was called in and, because the victim was a U.S. citizen, the FBI sent three agents to Venezuela to work with the security firm. The big problem was communicating with the kidnappers. They wanted to use high-frequency radio, but the mountainous region made that difficult.
"With the FBI and Venezuelan authorities, we located a high hill and the Venezuelans built a radio tower," McWeeney said. "We were then able to conclude the negotiations." The difficult process took several months and involved three governments, but after payment of "a very high ransom," the engineer was released. "We insist on proof of life all the way through, before we give over any money," he said.
The victim had lost considerable weight and was suffering some emotional problems but was otherwise unharmed, McWeeney said.
From 1993 to mid-2000, Corporate Risk handled 253 such incidents on behalf of PIA and didn't lose anyone, McWeeney said. "Our role is to negotiate, negotiate, negotiate. We don't believe in rescue, rescue, rescue--you can always get the money back."
As part of their work for PIA, Corporate Risk employees will visit client-companies to deliver security awareness briefings and discuss executive protection. The consulting firm also will perform security surveys at a company's domestic and overseas facilities.
Another service is due diligence, with Corporate Risk performing background investigations on foreign companies. If a client is involved in a joint venture in a tough area, Corporate Risk will make sure that the other parties have clean records and are not involved with the local mob, McWeeney said.
Insurers say the cost of kidnap/ransom and extortion coverage tends to be reasonable, depending upon which foreign country is involved. "We segment the world into high-, medium-and low-risk areas," McDermott-Lucey of AIG said.
Broker Anthony Fardella, director of the professional liability division at Rollins Agency Inc., Tuckahoe, N.Y., has been active in placing kidnap and ransom insurance for Fortune 500 companies and high-net-worth individuals. Recently, he placed a policy for a financial institution in Westchester County, N.Y. This client does business in Colombia, Ecuador and Mexico and its executives and other employees travel to those countries. "They do about 50 visits there a year," Fardella said. "The premium is $1,500 for a $1 million policy--an inexpensive cover. People buy this because it gives them access to a security team."
Fardella said his firm placed coverage for a client that had a large South American presence. "One of their executives was involved in a situation where there was an extortion demand," he said. "The crisis team came in and pulled him out."
With plentiful capacity, pricing has remained fairly stable in this market over the past 10 years, Fardella said. "We've seen a leveling out of premium and, about five years ago, a broadening of policy terms and conditions. Now there are pretty much standard enhancements."
However, some hardening of prices has occurred recently among accounts with exposures in Mexico and Colombia because of the increased frequency and severity of claims arising from those areas, Mansour of Chubb Executive Risk said.
Increased demand among its affluent policyholders recently prompted Chubb Group of Insurance Cos., Warren, NJ., to add kidnap coverage as a standard feature to its U.S. homeowners policy, without increasing the premium. The enhanced policy now covers up to $100,000 of kidnap-related expenses, such as hiring a professional negotiator, gathering information and expenses for travel, meals and lodging, but it does not provide for ransom payments. The coverage applies to the insured as well as specified family members when they travel in the United States or abroad.
Peter Spicer, personal lines new product manager for Chubb, said the company began to be interested in this feature as part of its Masterpiece Personal Liability Coverage. "We're constantly evaluating how best to meet the needs of our customers who have a high degree of insurance assets." Spicer said. "Many of our customers travel for business and pleasure and they have children studying abroad. There's a heightened exposure for the children."
In addition to the $100,000 limit, there is a $25,000 reward provision as well as a $10,000 limit for earnings lost, he said. "This is being rolled out as part of the package of enhancements aimed at the entire customer base," Spicer said.
As for the future of the kidnap/ransom and extortion market, insurers expect to see demand for these policies rise as the numbers of abductions and threats increase worldwide.
"We're continuing to see an upturn in first-time buyers," VanWagenen said.
"From an exposure standpoint, in the hot spots where kidnappings occur, we're seeing an increased frequency as well as a spillover to neighboring countries," Mansour said.
Davies of Hiscox pointed to a side effect of Plan Colombia, the $1.2 billion U.S. aid program signed into law last year by former President Clinton to help Colombia fight the illegal drug trade. It so happens that the drug trade, along with kidnapping, serve as the major sources of revenue for Colombia's rebel groups. Colombian experts think the rebels now may compensate for loss in drug revenues by increasing their kidnapping and blackmailing efforts.
"Already, a large number of citizens have gone over borders to get away from potential fighting," Davies said. "This is the 'Ecuador effect.' They're exporting crime to Ecuador, Panama, Venezuela. We're seeing more kidnaps for ransom there and a dramatic increase in crime as a whole."
Industries Affected by Kidnappings and Extortions April 1993-July 2000 Financial 23% Energy & Oil 18% Agriculture & Food 15% Manufacturing 11% Retail 8% Entertainment 8% Other 8% Private Individuals 6% Nonprofit 3% Source: Corporate Risk International Outcome of Kidnappings Based on 1996-1999 data. Ransom Paid 67% Released Without Payment 15% Rescued 7% Killed 9% Escaped 2% Source: Hiscox; Control Risks Group
Executive Kidnappings Happen in the United States, Too
Many U.S. businesses know that in expanding overseas they also may be exposing their employees to kidnap-for-ransom attempts. But that danger also exists on the home front.
Bank branch managers are particularly at risk. In recent years, the FBI has been investigating a series of bank kidnappings going back to August 1993. The initial incident involved the retired husband of a branch manager in Fairfield, Ala., who was taken hostage by three armed men who had been hiding in the woods behind his house. They tied the man to his bed and waited for his wife to return from work, reported Corporate Risk International, the security consultants.
"This is not just a kidnapping in the jungles of a faraway land," said Albert M. VanWagenen, senior vice president, kidnap and ransom, Professional Indemnity Agency Inc. PIA provides the services of Corporate Risk to policyholders of the carrier's ransom/kidnap, extortion and detention insurance. "This is real crime; these are real situations happening with alarming frequency." He pointed out that PIA's caseload of kidnap/ransom insurance claims currently is evenly split between overseas and U.S. locations.
This bank manager scenario has been repeated at least 11 times in cases in Georgia, South Carolina, Tennessee, California, Texas and New Jersey. CRI said it was called in on nine of these cases.
CRI said the kidnappings are similar in important details, All of the victims have been female bank managers in charge of rural or suburban branches. The kidnappers use either ruses or brute force to gain entry to the homes. In all cases, the bank manager and family members have been held hostage overnight. In the morning, the manager has been forced to go to her bank and turn over the contents of the vault, automated teller machines and night depository as the ransom to secure her loved ones' release.
CRI reports that all of the kidnappings have resulted in ransoms of $350,000 to more than $1 million. Since 1997, police have captured at least four members of these kidnap gangs.
Those who might be vulnerable could be employees traveling with a chief executive officer or even a bank teller. In one recent case, a bank manager was kidnapped while jogging, VanWagenen said.
"There's so much crime you don't hear about in the U.S.," said Sean M. McWeeney, president of Corporate Risk, a crisis-management service. "The FBI investigates 350 to 400 kidnappings a year--one-third for ransom." Also there are 2,500 extortion attempts against businesses, usually involving some form of ransom, McWeeney said.
"The difference in the United States is that the FBI does a really good job of investigating, along with the police," he said. "Our job is to liaise with the FBI."
One of the most famous recent cases of kidnap for ransom on the corporate front in the United States began in May 1992, when Sidney J. Reso, 57, president of Exxon International, was snatched from his driveway in Morris Township, N.J. Kidnappers Arthur and Irene Seale demanded an $18.5 million ransom, which Exxon agreed to pay. But before the money was exchanged, the FBI arrested the Seales, and Irene Seale later led them to Reso's body in a shallow grave. He had died five days after the 52-day ordeal had started. In the initial scuffle with Arthur Seale, Reso had been shot in the arm and then was confined to a coffin-like box in 100-degree temperatures. For this crime, Arthur Seale was sentenced to life in federal prison and his wife was sentenced to 20 years.
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|Article Type:||Brief Article|
|Date:||Mar 1, 2001|
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