Kidnap Policies Bring Insurers King’s Ransoms

Psst.

Traveling to any sensitive places for your company soon? Feeling a little uneasy that your seven-figure salary became public knowledge in that last proxy statement?

Then you might want to ask your company, quietly of course, to provide you with a little added protection.

Though it isn’t advertised in magazines or newspapers, kidnap and ransom insurance is a profitable business for some insurance companies that cater to executives and the high-profile ranks.

Some insurance insiders say as many as one in three Fortune 500 executives might have some kind of kidnap and ransom protection, especially if their company is picking up the tab.

Soft Sell Approach

Unlike corporate life insurance policies, the bulk of this coverage goes toward ransom, with smaller allowances for accidental death or injury. Not surprisingly, the business of selling this type of protection is very hush-hush.

“The marketing that takes place is certainly very low key,” said George Klink, a vice president of the Kornreich Organization, a large, New York-based insurance broker.

The key, he said, is to “convey awareness to a client. When I propose it, I . . . do it just in conversation when meeting with a chief executive officer.”

Though available for decades, this special brand of insurance became widely marketed with the advent of international terrorism in the 1970s. Lloyd’s of London was and remains a primary carrier, along with a handful of American insurance firms and British underwriters.

“There is legitimate interest in it,” said Jill Vernon, vice president of the special services division of American International Underwriters Corp., a subsidiary of American International Group Inc. Kidnap and ransom protection is her division’s main product, and the company “has had legitimate claims.”

Vernon estimates that about 85% of the policies AIG writes cover business people versus people who are simply rich. She noted that many businesses cover their entire work forces rather than just a select cadre of executives.

But although a policy might cover everybody down to the last file clerk, the paper work is handled “at the highest level,” with only a few top executives and lawyers cognizant of the coverage, she said.

Standard in every policy is a clause that voids coverage if those who are covered disclose it to anyone, insurers say.

Purchasers of kidnap and ransom insurance typically are “firms that are in the public eye, particularly firms whose principals are prominent, who are known to the public or known within certain business circles, or known to be wealthy,” Klink said.

Large multinational corporations are among those most likely to have such coverage, along with other companies doing business in sensitive places.

No Actual Involvement

“The hot spots have changed over the years,” said Ralph Jones, a vice president of Chubb & Sons, the management company for the Chubb group of insurance companies, which has offered such protection for about 15 years.

Last year, there were no terrorist activities in the United States, the Federal Bureau of Investigation said. In most domestic kidnappings, the abductors are trying to make a fast buck, not a political statement.

The Middle East, Latin America, Peru, El Salvador and Colombia are considered among the most dangerous places for executives these days. Big companies often are viewed as exploitative in these countries, experts in the field said, and executives cannot always count on local police protection.

If a company does a lot of business in sensitive areas, “it will be reflected in their premium,” Vernon said.

The cost of kidnap and ransom insurance is relatively inexpensive, Klink said. Executives can have $5 million to $10 million in coverage for about $20,000 a year, although premiums conceivably could run into the six figures depending on the circumstances, he noted.

For carriers, it can be quite lucrative. They either end up paying “zero or seven figures -- there’s no in between,” Klink said.

It’s up to the claimant to demonstrate money has been paid out.

“There’s nothing in the policy that says you have to get a signed receipt from the kidnapers or how to document it,” Klink said. Banking records can be used as evidence of having delivered the money.

Insurers do not become involved in negotiations, although they may cover the cost of an independent negotiator. Domestic incidents are handled by the FBI.

In actual kidnap incidents, ransoms usually average 25% of what was demanded. “For whatever reason, kidnapers always end up negotiating, settling for less,” Klink said.