Kidnap and ransom insurance: protect your family

Melanie Stern is Section Editor for Families in Business magazine.

Wealthy, well-known business families are targets for kidnappers, but can make provisions to be ready for such a crisis with kidnap and ransom insurance

Two years ago, the body of 11-year old Jakob von Metzler was retrieved from a lake near his home in Frankfurt, ending a four-day kidnap case. His parents, 13th generation of the German family-owned Metzler Bank, had paid a €1 million ransom on the demand of the kidnapper, a family friend. It was one of the worst high-profile kidnappings for ransom involving wealthy business families.

There is no way to be sure kidnap can never happen to a family, but a clutch of companies now offer specialist insurance for these clients and their businesses that cover a range of services and experts designed to steer a positive outcome of any kidnap.

The key drivers for kidnap and ransom (K&R) perpetrators are economic and political pressures, worst in the places where the rich/poor divide is greatest – South American countries, the former Soviet Union, the Middle East and some Asian regions. The modern phenomenon of large companies expanding into new regions and sending staff on exploratory visits to remote areas means that possible victims are essentially played into dangerous hands. "Multinationals can't afford to just sit and grow in their domestic markets any longer – equity markets and analysts force them to come up with double-digit growth, and the only way they can do that is by expanding in to places where these risks are far greater," says Peter Dobbs, chairman and founder of AON's special risks arm, Asset Security Management (ASM).  Compounding the threat, wealthy business successors are now often paraded in the media for possible perpetrators to see – think TV coverage of party-girl Paris Hilton, fashion model Sam Branson, and Fiat heir John Elkann.

Expanding horizons
Another recent trend that has seen demand for K&R insurance rise is the popularity of sending family business heirs and heiresses on exotic expeditions or sojourns, often as a gap year, philanthropic trip or before joining the business officially. Perhaps unsurprisingly many families just do not think about the kidnap risk posed when travelling in high-risk areas.  "A lot of families like to send their son off orchid collecting in Columbia or on a gap year in Chile – and then they go missing," Dobbs says. "Only then is it a revelation as to what they should do about it, as they haven't considered the possibility beforehand and aren't aware which countries could have a problem."

There was much talk of companies moving operations to India in 2003, and this has already impacted conditions in that region. "In Central Asia there has been an increase in kidnaps from entrepreneurial families in the professional classes," chairman of UK security company Jeremy Wetherell, says.

The head of security at a London-based security company, who declined to be named, added that heirs of all ages are under increasing threat generally. "There have been more cases of extortion using snatched children, the heir or junior member of a wealthy family business in recent years, particularly in the UK, France and Germany," the chairman explains, adding that this is due to a rise in wealthy ex-patriot communities across Europe. Additionally, kidnappers know that they need someone fit enough to withstand the stress of captivity for ransom, as the currency to achieve their goals – not the elderly patriarch with a weak heart, for instance. This also underpins the trend towards snatching young children.

Legislative restrictions
In places where K&R is almost a non-event because it occurs so frequently, governments bar their citizens from taking out insurance on it locally because of the strain it puts on the banks to shell out such funds, and the residual pressure felt by the larger economy of repeated financial demands. Columbia, Italy, Malaysia and Singapore have all made it illegal to buy kidnap insurance, but the working of these restrictions are somewhat confusing. "In Columbia, legislation penalises the paying of a ransom by freezing the bank accounts of family members, thus avoiding paying it," explains professor Gonzalo Gomez-Betancourt of the Family Business Centre at Bogota's University de la Sabana. "The law specifies that it is illegal to pay a ransom except for 'humanitarian' reasons. Nonetheless, since all ransom is paid for humanitarian reasons, in that sense paying ransom is not illegal."

Gomez-Betancourt adds that it is permitted to take out this insurance through companies outside Columbia, with some complications. "The dollars must be bought from El Banco de La Republica which means the purchaser must inform the bank of their intentions – but no one is willing to do that because of the sensitive and confidential nature of the issue." Most wealthy families in Columbia and indeed South America buy their insurance with US or European-based companies including Aon, Seitlin & Co, Hiscox, PLI Brokerage, or go through a broker like Lloyd's of London. Additionally, families can always register their business offshore, buying family shareholder K&R cover through the company.

High risk organisations
Generally, companies that are especially high-risk are oil or banking/financial companies, supermarket chains and transport groups – organisations perceived to be cash-rich. The risk is heightened again if they operate in high-risk areas. Families involved in these types of companies and locations can expect to require coverage to the value of US$5-10 million or more, though the premium to pay on such a deal can be a reasonable $350,000-450,000 a year based on a policy naming up to 11 family shareholders.

These companies also face an increased risk of product extortion, sometimes covered in K&R policies, when the threat of causing extensive and long-lasting reputational damage to a company is facilitated by contaminating their products. The idea is not only to threaten family owners with the possibility that their customers will stop buying their products once a contamination case has occurred, but also to expose them to the risk of fines or litigation from breaking governmental manufacturing standards. "Someone contaminating your products and then exposing that to the press is far more damaging, reputationally and financially, than just kidnapping a daughter. Product extortion is common in the developed world, linked to EEC directives and liability laws, meaning these companies could be sued or even prosecuted if they do not meet the strictest governmental demands," ASM's Dobbs explains.

Dobb's company provides specialist K&R coverage to some 2,500 wealthy families, either the owners of large businesses operating in high-risk markets, or who have significant wealth from a recent sale of their business. As the risks increase and the cost of resolving a kidnap for ransom can be hefty, a few specialist companies offer bespoke cover for individuals or groups of family business members who are also shareholders. This cover can comprise ransom payouts, loss of ransom payouts in transit, specialists trained to assist at all stages of the negotiations, rehabilitation, PR expenses, medical needs, right through to the possible need for plastic surgery – and the event of a death. "It isn't the ransom payment that matters," ASM's Dobbs concludes. "It's the service behind it you pay for."