Piracy/kidnap/ransom threat grows

What seemed to be outdated crimes are increasing in numbers

By Phil Zinkewicz

When we hear the word “pirate,” we generally think of Treasure Island and the treacherous but very romantic rogues of the sea (think Johnny Depp). Wielding cutlasses and single-shot pistols, those miscreants were fearless in their determination to take what didn’t belong to them. Captains of commercial vessels would shrink in fear when they spied a ship flying the Jolly Roger approaching. We tend to think of piracy as a thing of the past, but not so.

Today, the risk of piracy on the open seas is greater than ever. Piracy is described as a war-like act committed by private parties, not affiliated with any government. Sometimes, the aim of the pirates is to steal precious cargo. But, sometimes, the aim is to kidnap a person or persons for the purpose of ransom.

Clements International, a provider of insurance and financial services to organizations and individuals working outside of their home country, says that the dramatic kidnapping of an American ship captain by Somali pirates in early 2009 should alert U.S. organizations and expatriates to the growing risks of kidnapping, ransom and extortion. Yan Bui, a commercial insurance account executive at Clements, says that piracy is a special threat to the shipping industry and to companies whose products and people are transported via marine vessels.

“More common are the risks of kidnapping, ransom and extortion—age-old risks that are on the increase,” she says. “There’s intense focus now on Africa and the Gulf of Aden since Richard Phillips, captain of the U.S. cargo ship Maersk Alabama, was taken hostage [in April 2009] and then freed by U.S. military. This was not an isolated incident. The International Maritime Bureau reports Somali pirates seized 815 crew members in 2008. But this is certainly not a new problem, and international organizations and expatriates face other very real risks in the form of kidnapping, ransom demands and extortion threats.”

It’s not only shipping crews that are kidnapped, according to Bui. Expatriates working overseas also face increasing risks as international trade expands. Says Bui: “Kidnapping incidents have grown in Afghanistan, Mexico, Pakistan, the Philippines and Venezuela. Most incidents occurred in Latin America. Hundreds of expatriates have been victims of kidnap in the past three years.

“The 2008 Kidnap Risk Brief from Clayton Consultants, Inc., reported the kidnapping of at least 172 foreigners in Nigeria in 2007,” Bui continues. “Kidnapping has spiked in Asia and the Middle East, especially Afghanistan and Iraq. Businesses and financial institutions can be targets for ransom demands ranging from thousands to millions of dollars. Only an estimated 10% of kidnap and ransom incidents are reported. In most cases, the ransom is paid and the victim is released,” says the Clements executive.

Bui points out that, while the U.S. military rescued the captain taken hostage by Somali pirates, governments are rarely involved in kidnapping situations. “Organizations are typically alone in trying to resolve such a crisis, and insurance is often the only available resource,” says Bui. “Organizations cannot afford to deny the threat that kidnap and ransom poses to their operations and employees. It is vital to ensure that mechanisms are in place to safeguard against these risks.”

All of which brings us to kidnap, ransom and extortion insurance (KRE). This insurance provides coverages for individuals and organizations, including non-governmental organiza­tions (NGOs), corporations and other multinational organizations in high-risk areas worldwide, offering protection in the event of kidnapping for ransom, wrongful detention and/or extortion. “It is important to note,” says Bui, “that as with all insurance policies, there must be a trigger in order for coverage to be extended. In the event of a kidnapping, a ransom demand must be made in order to trigger the policy.”

Says Bui: “Any organization with staff members traveling overseas to high-risk countries should get kidnap/ransom coverage, even if they do not have actual assets or offices in foreign countries. These include any organizations, whether nonprofit or for-profit, with staff members traveling overseas and high-profile, high net-worth individuals and their families.”

Bui says that benefits of KRE vary between carriers, but in general KRE insurance covers the following: ransom monies, transit/delivery, kidnapping, wrongful detention, extortion, accidental death and dismemberment resulting from kidnapping or wrongful detention, and judgments and legal liability resulting from kidnapping or wrongful detentions.

“It should be remembered that ransom payments are on a claims reimbursement basis, which means that the organization would have to secure the ransom payment beforehand and then submit a claim for the reimbursement,” she says. Common exclusions among carriers, according to Bui, include any fraudulent, dishonest, illegal or criminal acts.

In general, she says KRE uses the following factors to rate the coverage:

• Revenue/assets.

• Locations—high-risk locations like Iraq and Afghanistan are rated higher.

• Claims history—whether there have been any security incidents, kidnappings, wrongful detention, etc., in the past.

• Security program—whether the organization has a security director, security program, crisis procedures in place.

• Local national staff—if coverage needs to be extended to local national staff, depending on the country, it could drive up premium.

Says Bui: “Some brokers offer KRE as part of an overall financial package. But, we offer the coverage as a stand-alone, which provides more flexibility as to limits.”