In today's often dicey global marketplace, a boss probably wouldn't dream of sending you to Mexico, the Middle East or other world hot spots without kidnap and ransom insurance -- K&R, for short.
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Haven't heard of this specialty business insurance? That's by design.
While these unique indemnity policies are primarily tailored to reimburse companies for million-dollar ransom payments should a worker be kidnapped, hijacked or fall victim to a terrorist attack, the employees themselves are often intentionally kept in the dark about the coverage.
"Your employer doesn't want to tell you about the policy for obvious reasons," says Dave Brumbach, director of personal insurance for Clements Worldwide. "If you tell your employee that you have K&R coverage and they get kidnapped, they might just blurt out, 'Hey, my employer has a $5 million policy!' Employers don't want to go down that road. It could even void their contract to tell the employee."
Reasons for secrecy also include the potential risk of faked kidnappings targeting covered companies. "Some say that telling the employee could cause fraud as well, but you don't see that as often," Brumbach says. "You might see that more if a U.S. company hires foreign nationals."
What the insurance covers
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While K&R insurance is structured to address a company's exposure and liability if an employee is kidnapped, it often additionally covers losses due to extortion, cyberextortion and terrorism. Individual policies are available, though their cost makes them most suitable for high-profile entertainers, musicians, sports stars and other likely kidnap targets.
In addition to reimbursing the insured company for any ransom it pays, K&R business insurance typically picks up the costs of: a professional crisis management team and negotiator to resolve the event; a public relations team to protect the company's image; property damage, including misuse of proprietary information; reward payments for information leading to resolution; legal defense, in case a kidnapped employee sues; travel expenses; and even reimbursement for a lost ransom or extortion payment.
What can the kidnap victim expect? Depending on the plan, K&R may cover: medical, cosmetic, dental, rehabilitation and psychiatric care; loss of income; personal financial loss; child care; and, in the worst cases, funeral expenses.
"One thing we've found essential is the psychological counseling," says Greg Bangs, product manager for the kidnap/ransom and extortion unit at the Chubb Group of Insurance Companies. "We've seen incidents where individuals have been held for five, six, seven years. You come out of that type of captivity, and I guarantee you're going to need psychiatric counseling."
Policies born out of Lindbergh baby case
Bangs says kidnap and ransom insurance, which grew out of the 1932 kidnapping of the infant son of pioneer aviator Charles Lindbergh, was initially a tough sell for insurers.
"The original thinking was that this might encourage kidnapping, but it has been proven over the years that it doesn't," Bangs says. "Kidnappers and extortionists tend to target companies or individuals that they think have deep pockets -- that's really all it's about. Somali pirates are not Googling through financial statements" to see who has insurance, he adds.
Still, to prevent a kind of kidnapping open season, "all K&R insurance is set up as reimbursement policies, because in many countries around the world, it's illegal to insure against a ransom but not to pay a ransom," says Bangs. "It's 100% legal for a company itself to pay the ransom, and then normally the K&R insurance reimburses them for that back in their home country."
Steve Balmer, product manager for crime insurance products at Travelers, says his company has seen a recent spike in K&R business insurance policies, especially among small to midsize companies.
"Not long ago, to have a small business travel to South Africa or Brazil was unheard of," he says. "There is much more traveling among many more insureds today who historically would not have thought that they were exposed or needed to buy this coverage."
Like adding your own security firm
Smaller firms may even find that kidnap and ransom insurance coverage is a cost-effective way to, in a sense, bring a security force on board.
"A large company will very likely have a security arm or in-house security staff, whether to simply guard the building or advise executives on security matters, where a lot of smaller companies don't have access to those resources," says Balmer. "All major K&R insurers have associations with a crisis response firm that will provide guidance and assistance to their customers, to review security and travel protocols. It puts the emphasis on prevention rather than insurance."
Should trouble occur, having a crisis specialist at the ready can save a small company big bucks and be worth the additional business insurance investment.
"In every country in the world where there is a kidnapping issue, there is more or less an established market for how much you're going to end up paying. In Mexico, it's $300,000 to $1 million. In Honduras, it's $100,000 to $300,000 and so forth," says Bangs.
"Frankly, there are some extortions that the company can simply ignore; the extortion group may not even have the capability to succeed. But the company doesn't know that," he adds. "A security consultant who deals with these things all the time will say, 'Oh, we know that gang; you can ignore that threat.'"