Kidnap and Ransom in the Wake of ISIS

Hilary Tuttle


February 2, 2015

Kidnap and Ransom

This summer, the rise of the Islamic State of Iraq and Syria (ISIS or ISIL) was particularly marked by the kidnapping and beheading of Western hostages, including American journalists James Foley and Steven Sotloff, British aid workers David Haines and Alan Henning, and U.S. Army Ranger-turned-humanitarian Abdul-Rahman (formerly Peter) Kassig. All of the victims were captured while abroad and held for exorbitant ransoms by the terrorist group before being brutally killed on video.

While there is already ample capacity for policies to cover kidnap and ransom (K&R), politically-motivated kidnappings present a difficult challenge for the insurance industry. “They can’t be solved with authorization of significant amounts of cash,” explained James Gregory, Toronto-based regional director of Aon Crisis Management. “As a result, they require a much different approach, they typically go on for longer, and there is no question that they are a more complex situation than a regular kidnapping for cash, such as the ones we see out of South America.”

Insurers are still grappling with how to cover at-risk workers and travelers, and many of the entities sending them abroad have to catch up on managing kidnap risk. “It used to be that, if you were working for an aid agency, you were a lower risk,” Gregory said. “People understood that you were there doing good things and you were left alone. Sadly, that is not currently the case, and we do see cases where aid workers are taken.”

Journalists like Foley and Sotloff also present a unique challenge, particularly as their purpose is often to run toward the danger to get the story, and years of field reporting generate an extremely high tolerance for risk. Employers can jeopardize job performance by deeming a trip too dangerous, and they may not even be able to effectively make that judgment from so far away. “These are very experienced individuals who typically have a network of contacts, so they probably have more information about where is dangerous and where is not on a more detailed level than the majority of travelers,” he explained. “So while they are in a higher-risk category of client, they are absolutely insurable and we have several on the books at the moment.”

Indeed, the market for K&R policies has grown by as much as 40% in the past two to three years, Gregory reported, and is expected to continue expanding exponentially in the near future.

“Statistically, the odds of being kidnapped as you travel are very, very low, but I think there is a greater awareness from the client’s perspective that, as they send people to complex parts of the world, they need to provide them with a greater degree of support than if they are traveling to Paris or Philadelphia, and a kidnap and ransom policy is a relatively cost-effective way of doing that,” Gregory said.

Despite all of the attention incidents in the Middle East have drawn, however, the K&R market’s growth is not really spurred by the threat of ISIS. “Obviously, parts of the Middle East are very, very high-risk, but there really are no truly safe places to travel anymore,” said Denise Balan, vice president and country manager for U.S. crisis management at XL Group. The greatest threats actually are closer to home—and far more routine.

“There are 18,000 companies in America with operations in Mexico,” Gregory said. “I would be amazed if there were any sort of similar number with operations in the Middle East. Obviously, there are going to be oil companies out there that have operations and support services but, I think, at the moment, Mexico is the number one area of concern for our clients.”

Mexico should, perhaps, be the lead area of concern for any business traveler. According to data compiled by global risk consultancy Control Risks, Mexico topped India, Pakistan, Iraq and Nigeria as the nation with the most kidnaps-for-ransom in 2014 (see inset). The vast majority are economically-motivated kidnappings. These seldom make headlines, and the ransoms seldom break the bank—many are almost alarmingly routine cash-grabs, with short-term hostages held for a quick payout.

In the event of such an incident, the real value in the policy has little to do with financing a ransom. “Ransom demands have come down, so the average ransom demand in Mexico may be, say, $40,000. That’s not going to be an amount that will bring many companies to their knees—it’s a fairly manageable number,” he explained. “It’s the mechanics of the negotiations with the kidnappers, the delivery of the cash, managing the process, the family, the media, and the other employees in the organization—that is the complex part, and that’s where the real value of is bought: the response consultants.”

Such response consultants have been able to reduce the duration and ransom settlement terms, minimizing global fatalities to just 5% of victims. While outcomes vary tremendously by country, approximately three-quarters of victims worldwide were held for less than a week, with 75% released and 18% rescued. Further, ransom settlements are often far lower than demands, with some cases resolved for 10% to 20% of the asking price.

According to Gregory, these negotiations serve a dual purpose for companies that are targeted. “It’s a mistake to pay the first number that the kidnappers ask—you want to make yourselves a less attractive proposition the next time than one of your competitors, so if you resist and push back against the kidnappers, the next time they’re looking to kidnap somebody, they’ll hopefully pick somebody else,” he explained. “Unless it’s absolutely critical from a personal safety perspective or sometimes from a business perspective, even though it sounds counterintuitive, a slightly prolonged negotiation is better for everybody than an immediate settlement.”

While high-profile incidents such as those carried out by ISIS may continue driving public attention to K&R, experts believe the bulk of the business will remain short-term plays for a quick payout, centered in Central and South America, with activity increasing in parts of South Asia as well. “I think that we will continue to see Latin America as sort of a hotbed for the next several years, at least, and we will continue to see a rise in India and Southeast Asia,” Balan predicted. “As pockets of either crime or certain political motivation develop, we will continue to see new areas peak.”

Monitoring and disseminating that information and planning ahead may be a traveler’s greatest risk management tools. “As the economy continues to be global, we see people traveling more, and they are more interested in ensuring that they are tapping into the available network of security advice,” she said. “We are seeing increasing business because there is interest in ensuring that, whatever program the company has in place—be it employee safety or travel protocol—organizations are touching all bases and arming people with the proper information and security protocols.”

Hilary Tuttle is managing editor of Risk Management.