Clients can buy insurance that would cover the financial risk of a kidnapping or hijacking, but brokers should be aware of several things.
“In the event of a kidnapping, the onus is on the client to finance the ransom payment and then submit their insurance claim,” said Liam Morrissey, CEO of MS Risk Limited, in a recent interview.
“This is significant because a client might think, ‘If my ship gets hijacked by pirates who demand a $5 million ransom, that is not a problem. I have insurance for that.’”
But the reality in that situation is that an underwriter will say, “No, we are not paying the criminals $5 million, you have to finance it, and when it’s all over, come back to us with your claim,” reported Morrissey, a Canadian who founded MS Risk in 2011 and now works in England.
As an advisor to Lloyd’s syndicates, MS Risk’s services include responding to incidents such as hijackings or kidnappings, among others.
Special risks insurance is commonly called kidnap and ransom, or K&R, said Morrissey, commenting on the Lloyd’s market. In addition to kidnapping, K&R can also cover illegal detention, extortion, hijacking, and product tampering.
A sixth peril, evacuation, could be added on as an extension. Junior mining companies are among the Canadian clients who could be in the market for this kind of special risk insurance. Some junior mining companies may not fully appreciate the fact that they have to provide the initial financing of costs of a crisis and then claim these back later, said Morrissey.
Brokers should be pointing out to clients other details in the fine print.
For example, the policies normally stipulate that 10% of the premium can be used for prevention training, reports Morrissey. Therefore, if you buy a policy for $5,000 a year, then you get $500 worth of prevention training from a response company that works with the Lloyd’s syndicates writing the policy.
“Some large global firms may pay $300,000 a year in premium. Therefore, in a case like that, they would get $30,000 worth of prevention training,” said Morrissey.
“If you are buying K&R through the Lloyd’s market, you are also buying the services of a response company to come to your rescue.”
Morrissey advises brokers to ask the syndicate who the response company is.
“Do not accept replies that it is too confidential to talk about,” said Morrissey.
K&R will cover wages and bonuses of the hostage, Morrissey reported. It also normally covers the cost to pay employees working for release of hostage – for example, translators, security staff, HR or finance, media handling – as well as for the logistics costs incurred during the life of the case.
It also covers medical support costs – such as counselling and surgery – of people who were taken hostage.
Ransom payments are not always covered. This depends in part on who the kidnappers are.
“The Lloyd’s syndicates have rules preventing them from paying a ransom to a proscribed terrorist organization,” said Morrissey. “It may seem bizarre, on the surface, that an insurer could legally cover a ransom to a criminal gang, but cannot finance a ransom to a proscribed terrorist group,” he points out.
But if your client falls victim to a kidnapping, the perpetrators may not be telling the complete truth about who they are. “The perpetrators may use a banner name designed to scare you,” Morrissey said. “But in reality, it is possible and very common, in fact, the kidnappers may not in fact be the designated terrorists they claim to be. They do this to scare and shock the victim company in an attempt to build pressure.”