Kidnap and ransom: Is the risk so remote?
By Joann Ralph

GLOBAL BUSINESS Kidnap and ransom: Is the risk so remote? Here is what you need to know about K&R insurance in today's dangerous world. BY JOANN RALPH I NDICATIONS ARE that only a fraction of kid- nappings that are threatened, attempted, or successful are reported. The FBI investigates 350 to 400 domestic kidnappings annually; one-third result in the payment of ransom (with an average ransom of $2 million). Britain's Foreign Policy Center estimates kidnappers earn more than $500 million annually; investigations number 8,000 to 10,000 each year. The trouble spots are obvious destinations (Mexico, Columbia, Nige- ria) as well as the less obvious (Nebraska, Montana, North Dakota). Such data should compel business owners and corporate board members to evaluate their position and take steps to prepare ... now. As violence increases throughout the world for a myriad of reasons, businesses of all types and sizes face greater risks that employees, executives, board members, or their family members will be- come victims of kidnapping, extortion, detention, or retaliation. This isn't going to go away anytime soon. It is fast money, and there are incentives to at- tract criminals from all walks of life. Contributing factors include political unrest, extreme poverty, ineffective law enforcement, and the prospect of fmancial gain. A new cause for concern involves "express" or "lightning" kidnappings, which can occur even in safe areas. In these instances, an individual is hijacked or kidnapped for a short time —^ long enough to make one or several maximum with- drawals from ATM machines. Another increasing criminal trend is that referred to as "tiger" kidnapping: the abduction or holding of a hostage (or claim of hav- ing done so) with the intention of forc- ing an employee, a relative, or someone else to facilitate the immediate theft of any valuables or to concede some other form of ransom from an institution or business organization. European statis- tics indicate an alarming rise in this sort of activity, with a predominant increase in the banking and fmancial services sectors. Fast-food chains, retail outlets, small businesses, jewelers, and businesses considered cash-rich or those that deal in high-end goods are also targets. In these cases, it is not nec- essarily the executives who are at risk, hut those at middle- and lower-management positions. Although some of the incidents involve faked kidnappings, the psychological and financial im- pact can be considerable. There is a high degree of planning involved in these crimes, and the in- creased incidence makes it difficult for law enforce- ment to prosecute these cases. Another problem is the lack of reporting for fear of copycat cases or public relations concerns. It's not just about money Although money is the primary motivation, we cannot assume that it the only one. The objectives of today's crime against business include political agendas and the retaliation for a perceived offense. Such crimes can include threat or actual injury, as well as damage to products or property through contamination, use of proprietary information, theft of client credit records, or damage to a physical plant. The initial steps taken upon re- ceipt of an extortion threat can make all the difference in ensuring the safety of employees and customers and the fi- nancial well-being of the business. Un- JoAnn Ralph, CPCU, CIC, CRM, is the managing consultant at Rothstein Kass Insurance and Risk Management Group, which provides insurance consulting, risk management, litigation support, and disaster planning services. She has been employed in the insurance field for more than 30 years on both the company and agency sides of the business. The firm is an affiliate of Rothstein Kass, an international accounting and business consultancy ( FIRST QUARTER 2008 49 GLOBAL BUSINESS There is real value in having immediate access to security consultants fortunately, too many disaster plans deal primarily with information technology issues, leaving far too many other potential crises unaddressed. Certainly within the U.S., businesses must ex- plore the cause and effects of their own activities and the agendas of those who may seek to harm them. Whether someone is trying to gain an ad- vantage through corporate espionage or seeking retahation for a real or perceived personal or po- litical wrong, the motive may be more about cre- ating fear, gaining publicity, advancing an agenda, and damaging a company's reputation. Regardless of the motive or the cause, more than 90 percent of businesses that suffer a major disruption will go into bankruptcy if no plan has been developed or if that plan is inadequate for the times. employed by the insurance company. Sitting targets Why is it that as a nation we are becoming better at edu- cating our children about their safety with regard to kidnapping, but we have been lax about educating adults? Do we presume that we know what to do, or are we living in denial that we are at risk? As respon- sible corporations, we must consider the tools we provide our employees in the event they encounter circumstances that put their safety at risk. It maybe human nature not to want to consider such a ter- rible ordeal, but the reality is that the risk is grow- ing each day. As with the education of children, it is not the intent to make them fearful, but to help them feel more confident in their responses. With no regular and accurate reporting of inci- Who are targets? • Executives and high-profile persons • Middle-income employees • Family members • Employees who travel outside of the U.S. • Employees in proximity to cash or other valuables • Employees in industries with labor, political, or social enemies Who are the predators? • Militant groups • Organized crime • Disruptive labor unions •Political radicals • Disgruntled employees • Terrorists dents and government statistics that are often lack- ing, most of us go about our days oblivious to the risks. Do your employees understand the dynamics of the culture and the economy in the places they are visiting? As they arrive at the airport, do they know whom they may safely accept a ride from? Do they know the local traffic rules if they rent or drive a vehicle? Do they know what and what not to do if they are involved in a traffic accident? What if it is intentionally caused? Do they accept help from local police in the same manner as they would in their hometown? As business expands globally, it is imperative that corporations educate their employees as to the risks involved in their travels. Employees should be briefed about local customs and laws and how to protect themselves. Companies should provide What is the corporation's responsihility to employees? •Train employees (and family members) how to obtain critical informa- tion in the event of a ransom or extortion call. •Establish and enforce internal procedures to reduce the potential for employee misconduct, criminal threats, and security breaches. •Access informationfrom the resident security officarat the American embassy or consulate at your destination country {provides informa- tion on hotels, routes of travel, domestic protection officers). • Develop emergency response plans. • Develop an emergency plan as part of a disaster recovery plan; • Educate employees on U.S. laws such as the Foreign Corrupt update it, educate staff about it, test it, and practice it regularly. Practices Act (prohibits U.S. companies from using bribes or other illegal payments in doing business overseas). • Educate employees about local customs and immigrations laws (emphasizing that violations can result in imprisonment for simple errors in judgment). • Establish a "whistleblower" program for receipt of advance informa- tion about potential threats. • Develop a threat-assessment program. SO DIRECTORS & BOARDS GLOBAL BUSINESS employees with access to assistance if they find themselves in unfamiliar territories and encourage employees to remain aware and diligent even in the most familiar places, where their comfort level and vulnerability are increased. In addition, corpora- tions should have a plan to respond or access to resources to draw upon in the event an employee or a family member encounters a threat or becomes a victim. Kidnap> ransom, and extortion coverage Enough of a risk exists for the insurance industry to have developed a specialty product designed to pay associated expenses for investigations; recovery; rewards; public relations, legal, and medical assis- tance; and ransom. Although this coverage has been available since the 1970s, for many years it was of- fered only for the executives of large multinational companies. Today, these policies cover businesses of any size, operating in various markets and offer- ing diverse products or services. No one is immune from the risks that kidnap, ransom and extortion coverage (K&R insurance) can address, but it can mitigate the financial, psychological, emotional, and legal damages. Although the payment of these expenses through the insurance product is comforting and perhaps life-saving, the real value is having immediate ac- cess to security consultants employed by the insur- ance company. These security experts provide vital prevention, investigation, negotiation, and mitiga- tion services. The security consultant can assist the business in identifying increased risks, disseminating informa- tion, developing security guidelines, and training. After the crisis, mitigation services assist the busi- ness, the family, and law enforcement in tracking leads, verifying authenticity, and negotiating release in the event of a kidnapping. With access to local knowledge and law enforcement support, the po- tential for favorable results is greatly enhanced. What to look for in K&R insnrance Although there is some standardization in coverage, most companies have their own provisions, which warrant a careful review. Coverage may be obtained by endorsement to a crime or package policy as well as through a "standalone" policy. There are often differences in coverage and costs associated with each method. Greater flexibility in negotiated terms as well as increased limits are often available through a standalone policy. The policy can be structured to cover specific individuals (by name or title) or to extend to all employees. In designing the coverage, the scope of "covered premises" should be evaluated and in- What does the business have to lose? • Actual direct financial loss • Short-term business interruption • Temporary branch closings • Workforce rehabilitation • Duty-of-care costs • Legal costs •Insurance cost increases • Stock value impacts •Customer confidence • Shareholder confidence • Reputation • Public relations costs • Future tost time of witnesses • Medical/psychological services to involved persons • Job replacement for involved persons who choose not to return to the job • Lost productivity •Lost opportunities •Valued employees Definitions Kidnap/Ransom — cases in which a person is abducted or ransom is paid in the belief that a person has been abducted. Extortion —threats of abduction, bodily harm, property damage, introduction of computer viruses, disclosure of proprietary information, or product tampering, Wrongful or Malicious Detention — arbitrary acts of involuntary confinement of a person by an agent (or a person purporting to be an agent) of any govern- ment entity, insurgent party, organization, or group. Hijacking—cases in which a person is illegally held under duress while travel- ing on any aircraft motor vehicle, or waterborne vessel. Advantages of security firm services available through K&R insurance • Expertise in prevention and education services • Expertise in negotiations and liaison with authorities • Assistance with stress management during and after crises • Communications security • investigative services • Facility security consulting and executive protection •Special event planning • Business continuity planning • Due diligence • Workplace violence mitigation • 24/365 incident response • Anti-abduction training • Access to "real time" political and criminal risk intelligence • Internal fraud prevention • Anti-piracy investigations FIRST QUARTER 2008 51 GLOBAL BUSINESS dude foreign locations where necessary. The cover- age territory for travel may include limitations and should be evaluated in terms of not only excluded areas but also restrictions that are triggered in the event of a travel-warning pronouncement by the U.S. State Department. Broader coverage is pro- vided when a specific security firm is designated in advance of a potential situation. This broadening effect may result in security firm services being paid in addition to the policy limits rather than being counted against policy limits. Since the costs of Ups for employees and family members • Be aware and alert. • Keep a low profile. • Do not carry large sums of cash or wear expensive jewelry (or items that may look expensive), • Leave wallets or purses secured and carry only necessary cash and ID in a front pocket. •Vary your routes, and do not set established patterns. • Vary times of departure and arrival by as much as 30 to 45 minutes. • Know primary and alternative routes to all destinations. (Review a map prior to traveling to a new or unfamil- iar city so you know which direction your taxi should be traveling.) • Know locations and routes to near- est police stations and hospitals. • Establish a designated meeting place and communications point. • Avoid areas with high political or criminal activity. • Review the safety of your travel destination to determine if you should use an alternative to public transportation or taxis. • Keep a fully charged cell phone usable in your destination country and a local calling card. • Keep a list of local emergency numbers, country codes, city codes, and dialing procedures (including local consulate or embassy). • Leave an itinerary with family and office — periodically check in. • Monitor travel warnings and access information or Critical crime coverages every business sbould consider • Employee theft •Forgery or alteration • Theft of money or securities inside premises • Theft of money or securities outside premises • Robbery or burglary of other property inside premises •Computer fraud •Fund transfer fraud • Money orders and counterfeit currency • Cyber liability— security and privacy coverages • Kidnap, ransom, extortion these services can be considerable, this is a feature that may prove to be extremely valuable. Premiums for this coverage will vary, and buying decisions should evaluate the policy terms and con- ditions as well as the up-front premiums. Factors considered in pricing include: — Size of company and nature of business; — Number of trips per year; — Duration of trips; — Countries visited; — Security plan; and — Reputation and character of the insured. Sample coverage provisions Most K&R policies provide the following four in- suring agreements: — Direct loss from kidnap, ransom, extortion: value used to pay ransom (money, securities, and tangible property); — Expenses covered resulting from kidnap, ran- som, extortion: private investigator, security firm (if not named until incident occurs), public rela- tions; — Detention or hijack expenses; — Loss of property in transit for delivery of ran- som or extortion. Separate limits may apply to each agreement, and there may be a provision for fees to a predesignated security firm applying in addition to the limit of insurance. Deductibles may apply to some portions of the policy; however, if multiple coverage parts apply to a claim, only the highest limit and highest deductible apply. The definition of insured person may vary, but generally includes: — Any director, trustee, partner, member, man- ager, employee, and proprietor of any insured un- less excluded; — A relative, guest, or resident in the household of an insured person; — Any messenger. The scope of covered expenses may include any or all of the following as specifically identified in a particular insurer's coverage application: — Declared security firm hired to negotiate or secure the release of an insured person; — Independent negotiators; — Public relations firm; — Interpreters; — Security guards if recommended by declared security firm; — Travel and accommodation costs; — Salary and other financial benefits paid to in- sured person for up to five years after the insured person is abducted, subject to provisions for limita- tions of payment; 52 DIRECTORS & BOARDS GLOBAL BUSINESS — Hospitalization and medical services within 24 months of release; — Independent forensic analysts; — Interest costs on loans for ransom or extor- tion payment; — Personal financial losses incurred by insured person; — Reward money paid for information leading to arrest and conviction; — Other reasonable expenses incurred and agreed to by insurance company. Often these are not provided in a "menu" from which you pick or choose, but if you have a pro- posal and find something lacking, there is always the possibility of negotiating changes. Not a substitute K&R insurance is not a substitute for other neces- sary coverage. It is critical to evaluate the scope of those policies to assess how they may apply in such situations as a product recall or loss of earnings or costs owing to business interruption. And, as with every insurance policy, there are exclusions to be considered. Some of these exclu- sions are provided in the K&R insurance contact because the risks are more appropriately covered elsewhere. Other exclusions explain the scope of uninsured risks for: — Criminal acts committed by an insured; — Robbery-related surrender of property at in- sured premises when not due to ransom or extor- tion; — Acts arising from insured person's participa- tion in political activity or operations of security/ military force; — Expenses owing to insured person not having properly obtained or maintained travel documents, such as visa, permits, passport; — Violation of laws of foreign countries unless deliberately false, fraudulent, or malicious allega- tions to achieve political, propaganda, or coercive effect. Often a clause can be negotiated so that cover- age will apply until such actual violation is proved. A word of caution regarding D&O liability insurance Although this article is not intended to offer advice on the construction of D&O liability policies, there are a few common provisions that should be consid- ered: • Exclusion for Claims Arising from Illegal Payments, Gratuities, etc.: This is sometimes called a "payments and commissions" exclusion, which precludes the policy from responding to claims related to bribery or violations of the Foreign Corrupt Practices Act. •Insured vs. Insured Exclusion:This exclusion may preclude or limit coverage for claims brought by one insured against another. Depending on the definition of "insured," the scope of coverage potentially available for defense or awards may be restricted. The intent is to preclude the company or individual directors or officers (or other employees if also insureds} from using the D&O insurance as a collusive means for recovering losses due to the acts of its own elected or appointed officers or directors. Exceptions to the exclusions may be negotiated orthe definition of insured may be restricted if deemed more appropriate. • Failure to Effect or Maintain Insurance or Adequate Limits of lnsurance:\Nher\ included, this exclusion is intended to preclude the D&O policy from being used to attempt to fill in gaps in the scope of coverage afforded by other insurance or the decision not to purchase such other insurance. Although largely taken out of standard coverage terms in recent years, current policies or proposals should still be reviewed to ensure this exclusion is not included, — JoAnn Ralph As with any insurance purchasing decision, as coverage becomes less standardized and options more complex, it is advisable to consult experts in the evaluation of policy features and design. The vital nature of K&R insurance in conjunction with other aspects of your insurance program can en- hance the value of your business and ensure ap- propriate steps are taken to protect your people, property, and public image. • The author can be contacted FIRST QUARTER 2008 S3

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