With an increase in economic instability, political unrest, and criminality, and businesses operating on a global basis, the demand for Kidnap, Ransom & Extortion (KRE) insurance has risen significantly over the last decade. We spoke to Sarah Katz, Assistant VP and Senior Underwriting of Victor O. Schinnerer & Co., about KRE insurance, the trends in this area; the need for coverage; and the type of insurance protection it provides to corporations, organizations, individuals, and family members.
Based in Chevy Chase, Maryland, Schinnerer is one of the largest and most experienced underwriting managers of professional liability and specialty insurance programs in the world. The company also has offices in California, New York, and Texas. Sarah joined Schinnerer in 1998 and began working in the KRE division in 2000. Prior to joining Schinnerer, she worked at Maine Medicaid.
Annie George (AG): Sarah, let’s begin with an overview of KRE insurance.
Sarah Katz (SK): “KRE began as a specialized coverage offered out of the London market. In the 1990s, the U.S. market started offering the coverage, and it has grown extensively as businesses face increased exposures as a result of global expansion and operating internationally. In fact, kidnappings have increased over 275% in the past 10 years. There has also been a rise in claims as a result of political and economic instability.
“The basic policy provides coverage to companies or individuals in the event of a kidnap for ransom, and extortion with a threat to cause harm to an insured person, to damage property, or to reveal confidential information, such as in the case of cyber extortion and associated ransoms. Detention, hijacking, and product extortions are also covered under our basic policy.
“About 80% of the policies are purchased by corporations and entities, with the other 20% purchased by high net worth individuals and families. Both international and domestic only coverage are available. More kidnappings happen outside the U.S. and exposure levels dramatically differ from country to country and even within regions.”
Sarah explained that coverage is available to corporations, non-profits, hospitals, schools, financial institutions, retailers, etc. – basically any type or size organization. The policy typically covers the named insured’s directors and officers and employees. In addition, family members of executives and employees are covered. “Oftentimes, in certain countries, it’s an executive’s dependent that is targeted as criminals realize that the owners are the ones with access to funds and the relationships with banking institutions,” said Sarah. Coverage can also be tailored to include certain specific classes of individuals if requested.
In addition, there are a number of industries that purchase the coverage even if they’re not traveling internationally because of cyber threats. “Someone can hack into the company’s computer and threaten to distribute the information unless a ransom is paid,” said Sarah.
AG: What trends are you seeing?
SK: “There’s been an increase in risk in Mexico due to a real deterioration in security in the last three years. This has resulted in a significant rise in kidnappings and extortions, and can impact companies that have offices there, employees living there, and employees traveling there on business.
“Another hot topic is security evacuations. With political instability occurring in certain regions, such as in the Middle East (Egypt, Syria, Libya), expatriates and people traveling there have had to be evacuated for security reasons. We offer a coverage extension for this where the policy pays to reimburse the cost of the evacuation and provides assistance in managing the evacuation. A company also has access to expert advice and assistance in how to get their people out of a dangerous area.
“We’ve also seen an increased risk to those who work in the energy industry. They’re being increasingly targeted, particularly for those businesses operating in Nigeria and West African countries. Nigeria had the largest number of kidnapping incidents worldwide in 2011, followed closely by Pakistan, Mexico, Afghanistan, and Venezuela. Any industry operating or traveling to these countries has to seriously consider the risks involved and this coverage.”
AG: You tailor the policy depending on the industry and their specific exposures with extensions and broader coverage. Can you provide us with examples?
SK: “For example, Child Abduction can be included in the policy, specifically for entities that have children under their care on their premises, such as hospitals, schools, and day care centers. Schools also require Assault Expense coverage for incidents such as Columbine. This covers the costs of temporary security; counseling for students/staff and families; leasing access to facilities off-site if the school is off limits; legal, communications, and PR advice for school; salaries for additional staff that may be needed as well as salaries of affected staff; medical costs; personal accident coverage for those disabled or killed; and more.
“Hospitals have specific exposures including abduction from a non-custodial parent that can be covered by enhanced Child Abduction coverage. Coverage is also available if someone makes an extortion demand threatening to tamper with a particular medication or product the hospital handles that can be addressed with a Products Loss extension. The coverage would pay for the recall cost and the expense to replace the medication.
“Hostage Crisis coverage is available for organizations, such as banks or retail stores, who would be exposed to this type of risk. “And houses of worships need coverage to extend to missionaries and volunteers operating on their behalf. Often they’re working in developing countries where there are exposures to KRE.”
Schinnerer’s Kidnap, Ransom & Extortion program, established in 1997, is available in all states and the District of Columbia on an open-access basis. The program is written on admitted paper with Great American, an A-rated carrier, in all states except South Dakota and Washington where it’s written on a non-admitted basis. The minimum premium is $1,000, with the cost of the policy depending on the size of the company and exposure. “We can write everything from Fortune 100 companies to the one-person shop,” said Sarah. “Limits start at $1 million and go up to $65 million.”
Some of the policy’s features include:
· Worldwide coverage with separate limits for ransom, transit, additional expenses, legal liability, and personal accident
· Additional expenses such as medical expenses, psychiatric care, temporary workers, interest on loans to meet the ransom
· Unlimited coverage for crisis response fees and expenses incurred
· No retention or deductible
“What’s more, we provide access to Control Risks, a crisis response firm that will lead a company through the negotiation process so that the incident is resolved as quickly and safely as possible,” explained Sarah. “This is a key feature of our program – to provide access to an expert – as there are so many moving parts involved in a kidnapping or extortion with different people who have differing interests. Control Risks has been doing this since 1975 and has handled over 2,000 cases in 116 countries.”
Schinnerer also serves as an expert on KRE for agencies, helping brokers to answer any questions a client may have. In addition, risk management materials are available for clients, with information on handling a crisis and a website subscription that includes updates on kidnappings around the world.