Greece, the EU and the markets: You can't always get what you want
Buttonwood's notebook
FOR providers of kidnap and ransom insurance (K&R in the lingo), the past few years have been good. Somali piracy alone generated some $200m in annual premiums at its 2010 peak, according to one underwriter. Abductions for profit or politics have soared from Nigeria to Nicaragua. High-profile cases have helped too: when hundreds of workers were taken hostage at an Algerian gas plant in January, insurers received a flurry of calls, says Henry MacHale of Aspen APJ, a specialist K&R firm.
Most big companies now have some K&R coverage for their staff. Plans typically cover ransoms, the hiring of consultants and negotiators, lost earnings and other costs. A lone businessman in Iraq might pay a premium of $3,000-6,000, while shipping firms have to fork over several million a year to cover large fleets in dangerous areas. All that meant that a market worth about $250m in 2006 doubled in size by 2011.
Now the business is shifting. Somali piracy has dropped off; there have been no documented successful hijackings since May 2012. And although the number of attacks in the Gulf of Guinea overtook those of the East Africa in 2012, quieter shipping lanes there mean fewer potential customers. Yet new markets are opening up. In Africa, India and Latin America the middle class has been growing—and so has the worry about being snatched. For instance, “express” kidnappings are on the rise, negotiators report. Unlike the protracted wrangling more familiar to movie goers, this quicker version involves fast, targeted grabs, followed by shorter periods of detention and smaller ransoms.
At the other end of the scale, says Mark Harris of the Olive Group, a consultancy, some highly professional Mexican bandits now run multiple “cases”, managing kidnaps, negotiations and payments from a single building. Others, such as Terra Firma Risk Management, a negotiation firm, say the most serious cases seem to be getting more protracted, and hardened kidnappers more patient. Trends such as Chinese energy firms moving into West Africa add to the business K&R firms can chase.
To set themselves apart, some are offering “added value,” often aimed at reducing the risk of a kidnapping in the first place. By training clients to avoid trouble, and helping them out when they smell danger, insurers can cut pay-outs. Such measures not only ensure that client get home in one piece, but lower premiums. Governments are fans, too: at the G8 meeting in mid-June, ministers agreed to crack down on the payment of ransoms to terrorists, urging insurers and clients to adopt “good practices” for kidnap prevention.
In an innocuous farmhouse in the village of Remenham, 30 miles west of London, Special Contingency Risks (SCR), a brokerage, has set up an “operations centre” (pictured) to help clients in dangerous places. Manned by ex-special forces soldiers and at least one former spy, it acts as a call centre or crisis room, depending on the situation. Big screens feed news to the staff on duty. Some clients are issued with tracking devices, and their locations are shown in real-time.
If a customer is on business in Libya or Nigeria, says SCR’s Tim Holt, they will be given advice before they leave. If he or she senses trouble brewing while they are abroad, they can call the farmhouse. The team there will then use a network of “black book” contacts, including private security firms, to reach the client in danger. If plans fail and a customer is nabbed, negotiators will huddle with family members and colleagues in a “war room” upstairs.
Doug Milne, SCR’s boss, is cagey about specific cases, but claims about 60 kidnaps per year will be run from the new facility. Extortion and medical evacuation are other orders of business. Insurers include Hiscox, Chubb and Aon, each of which provides crisis management or security to bolster their products. At the outbreak of the 2011 Libyan Civil war, “risk managers”, paid for by K&R insurers, helped co-ordinate the evacuation of hundreds of foreign workers.
The move to a higher-tech approach seems well timed. According to Terra Firma, Latin American kidnappers are getting better at choosing their victims, using intelligence gathered from Facebook and other sources. Crooks who have done their homework tend to pick better targets, choosing those with families or employers who have access to ready cash. Smaller gangs, keen to join in, are learning the tricks of the trade.
Insurance alone does not reduce the chance of being snatched (discussing your policy can see it cancelled—kidnappers will target those with K&R cover). But preparation, and a helping hand when things go wrong, just might improve the chance of getting out alive.
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Not just merely kill them, but crucify them. Give them a little time to reflect on the errors of their ways...
P.S. That is the way to deal with modern-day pirates, too, I think...
I can't help but feel that Julius Caesar's approach to the business of kidnapping for ransom was more direct and effective: pay the ransom, get the hostage, then go back and kill every last kidnapper until the problem is eradicated.
Some time ago, when I did international business travel, a popular story went like this:
Russian business person was 'detained'. A threat was made and 'proof of life' photo was taken. A courier was identified and a payment was made. Russian resources identified the courier and when the person was not delivered, members of the couriers family 'disappeared' and/or some 'pieces' were delivered to the courier. In short order, the proper parties were identified and their family members began to disappear and/or re-appear in various fashions. The Russian was delivered safely.
Although other nationalities were harassed, I never heard of another Russian being detained.
That is true K&R.
As I recall Julius Caesar had one additional tweak on his handling of kidnappers, when he himself was being held hostage. When he heard what ransom they would ask for, he was upset that they didn't consider him more valuable. He demanded that they increase the ransom. So they did. It was paid. He was freed. Then he returned and crucified them.
That would be real high-class K & R. Whatever ransom kidnappers ask for, we will pay double the ransom just to show how important you are.
Sorted. Thanks for spotting.
This is very interesting. I had to idea this type of market existed. I would anticipate that this market will slowly shrink as some of the poor countries slowly develop.
For instance, “express” kidnappings are the rise, negotiators report. # typo
Russians don't value life of people that high.
Cyber Extortion is another crime that is ratcheting up; it can affect virtually any company and may take many different forms. For instance, an extortionist hacks into the company's system, and may threaten them with a denial of service attack or to take down the company's inventory management system or to reveal patient information in the case of a health care organization. But, the end goal is the same: get the company to pay money for the extortionist's retreat. We've found that companies that immediately involve law enforceement in these situations tend to fare the best. However, there are still costs incurred by the company, such as fees for security consultants, cyber consultants, law firms and PR consultants, which would be covered under a kidnap, ransom and extortion insurance policy. We are also seeing an increase in virtual kidnapping, where the kidnappers never actually take physical possession of the person. These clever schemes are all done by phone and while they spare anyone from being physically taken, they don't spare the emotions or bank accounts of those who are told that a loved one has been kidnapped.
Clearly, the risk landscape has changed and companies and their boards need to make sure that risk management for cyber extortion and kidnapping is an integral part of their insurance program. Many larger firms probably already have this planning in place; my concern is for the thousands of companies below that level that don't have this on their minds.
Biggest concern for me is the effectiveness of the negotiator, availability, and overall operations. Access to the area where the incident has taken place as well as local relationships are also key. Many of the large groups simply depend on just a few players or limited experts. Further, establishing a limit that is in line with the overall exposure is important as well. Nice article. Thanks.