No hostages to fortune: the insurers have kidnap covered

In some parts of the world, in particular South America, the well-off accept the risk of being kidnapped as a fact of life. Colombia, which has averaged more than 300 reported cases a year during the 1990s, has the worst problem. And since many incidents are not reported, the situation could in fact be far worse.

The UK, with a mere 23 cases during the 1990s, is a relative safe haven (see table). Brits have tended to be more exposed to extortion - the threat to kill, injure or abduct if money is not handed over.

Nevertheless, London is the main centre for both kidnap and extortion insurance, accounting for around three-quarters of all business worldwide.Lloyd's of London and several insurance companies take the risks on to their books, while large insurance brokers, such as Willis Corroon and Bain Hogg, in effect sell most of the insurance.

Wealthy families account for the bulk of demand for this insurance, but multinational companies, which are becoming increasingly aware of the dangers of sending staff abroad, are also an important source of business. Many take out a worldwide policy to cover all employees and their families against kidnap and extortion. A large company might pay $50,000 (pounds 32,000) a year for $10m of cover, for example. Some companies take out as much as $100m of insurance.

"The confidential nature of the business is paramount as it is vital that having insurance is not allowed to increase your chances of being kidnapped," explains Andrew Askham, executive director of broker Bain Hogg International. "Only the broking team and the lead underwriter will ever know who is insured and even at the company concerned it will often be kept at main board level."

Kidnap insurance policies cover not just ransom payments but also the cost of victims' salaries, replacement staff and legal, medical and psychiatric assistance. These costs can often amount to more than any ransom paid out. The highest documented kidnap ransom ever paid out is $64m but most requests are for more realistic sums of money. The gangs involved are often highly organised and motivated entirely by profit. The "going rate" varies from country to country. In Colombia, $1m or $2m would normally be asked for an expat and several hundred thousand dollars for a local.

Kidnappers, because they are active primarily in Third World countries where police forces can leave much to be desired, only get caught in around 10 per cent of cases. Yet extortionists, far more of a First World problem, rarely seem to succeed.

"It's unusual for extortionists to get away with it in the UK because our police are not corrupt," explains Douglas Milne, executive director, special contingency risks, at Willis Corroon. "The problem is not so much the ransom demand, which is rarely paid, but the potential loss of profits resulting from adverse publicity and from having to withdraw products."

As well as offering policies, insurers encourage clients to make use of specialist consultancies to provide advice on how to prevent kidnap and extortion situations from arising and how to handle them if they do arise.

Willis Corroon is unusual among brokers in offering a degree of free preventive ad- vice to its clients. It estimates that its loss ratios are half those of its competitors as a result. Nevertheless, its operation, which employs seven staff worldwide, is tiny in comparison to that of Control Risks Group, a consultancy that employs 180 people.

Control Risks has a link-up with the Cassidy Davis Hiscox consortium at Lloyd's, which is the major UK kidnap and extortion underwriter. Control Risks can provide detailed analysis of the areas in which a company is going to work, shedding light on factors such as the extent of terrorist and criminal activity or how certain types of company are viewed by local political groups. It is also able to advise on how to live and travel in ways that minimise the chances of being kidnapped.

"Our basic task is to enable people living in at-risk situations to lead as normal a life as possible," says spokesman Richard Fanning. "After all, you could make anyone secure simply by locking them in a fortress."

Preventive training concentrates on everything from self-defence and driving techniques, to raising awareness of where kidnappers are most likely to strike and the nearest escape routes. Kidnappers often tend to study routines for several months and swoop on a regular journey near a home or office. Potential victims can be trained to modify the times of journeys and routes.

People are also advised on how to survive as kidnap victims. Establishing a rapport with kidnappers can, for example, be a critical factor in preventing them from killing.

Once a kidnap has occurred Control Risks issues telephone advice and dispatches a representative to the client's premises. That person works out the identity of the kidnappers, their motives and methods.

"Our advice generally is that escape is very dangerous and our primary function is the preservation of life," explains Mr Fanning. "Within this context our initial objectives are non-payment of the demand or payment of the minimum possible sum. [But] we don't negotiate directly or deliver money."

Control Risks always tries to find a suitable angle for securing a release, often pleading health and humanitarian grounds. In more than 20 years of operations it says it has never failed to preserve life from the point at which it became involved in a case.

Kidnapping round the world

Country Total reported kidnaps during the 1990s*

Colombia 2,316

Pakistan 755

Brazil 456

Philippines 287

Mexico 235

USA 203

Guatemala 124

India 83

Venezuela 57

Ecuador 44

Peru 43

Italy 43

UK 23

Source: Control Risks Group. *Up to June 1996