How to best insure clients against kidnappers

While kidnap and ransom (K&R) insurance is one type of insurance nobody wants to have to use, there are a few things that should be kept top of mind for brokers placing the coverage.

The most important consideration revolves around negotiators contained in the K&R policy, said Gary Hirst, president and CEO of managing general agent CHES Special Risk Inc.

“Every policy needs to come with a good quality negotiation team and not all K&R policies do come with that, so the brokers need to be aware of that,” Hirst said. “Usually, some sort of special forces experience is important because there’s a lot of psychological issues with dealing with kidnappers.”

Another consideration for brokers is policy extensions. For example, are newly-born children automatically covered under the policy? “Some policies, they’re not, and you obviously need to make sure it’s the entire family that’s covered because [kidnappers] don’t always kidnap the business person, they’ll try and kidnap a child,” Hirst said.

Other extensions include post-traumatic stress disorder and other psychological conditions, plastic surgery (in case of disfigurement, for example), and coverage for travel to Latin America.

“The broker needs to be aware of where the client is travelling and advise the insurance companies accordingly,” Hirst said. “Because buying a kidnap and ransom policy for going to Newfoundland is going to be a lot cheaper than going in the jungle of Colombia looking for oil.”

A K&R policy is one of indemnity, so policyholders must pay a ransom first before getting indemnity back from the insurance, Hirst said. “You’re not able to just get the insurance company to pay the kidnappers whatever it is that they’re demanding. The family actually has to pay the money to the kidnapper and then they get indemnity back afterwards.”

It’s also important to note that the insurer will require the policyholder to prove their net worth. “You can’t just turn around and say ‘I’m worth $5 million, or I want to buy a K&R policy for $5 million,” Hirst said. “The insurance companies will look at what your net value or net worth is and work out with you the limits of indemnity.”

The Canadian Network for Research on Terrorism, Security and Society reports that, since 2001, 30 Canadian nationals have been kidnapped and held for ransom by terrorist groups while travelling or working abroad.