Risky Business: Kidnappers Target Global Executives

A Mexican businessman participating in a recent Executive Development Program and negotiation workshop at Wharton had an interesting story to tell his colleagues. It seems that gangsters had recently kidnapped his uncle, a wealthy entrepreneur, and demanded money from the man s family in return for his release. The family immediately paid the ransom, the kidnappers delivered the uncle and collected their money, and then they promptly kidnapped him a second time, demanding more payment. “Other executives have related similar stories in which an initial ransom demand, too quickly accepted, turned into a down payment toward release or became the price for obtaining proof that a hostage was still alive,” says legal studies professor G. Richard Shell, program instructor and author of Bargaining for Advantage: Negotiation Strategies for Reasonable People. “On Wall Street, moves like these would be bad faith bargaining. But, needless to say, this is not Wall Street.”

Hardly. As corporate America buys and sells more goods and services abroad, the number of company employees kidnapped for ransom in places like Mexico, Brazil, the Philippines and Chechnya has increased. Along with that increase have come escalating demands for ransom money, more expensive insurance policies, and more sophisticated negotiation tactics on both sides of the table.

According to the Hiscox Group, a London specialist insurer, worldwide kidnappings for ransom in 1999 reached a record peak of 1,789 (compared to 1,670 in 1998) and doesn t include incidents that are either unreported and/or are settled privately. Indeed, some insurance sources estimate the number of kidnappings in Colombia alone at close to 3,000 a year. Of the 1999 incidents, the report added, 92% took place in the top 10 riskiest countries: Colombia, followed by Mexico, the former Soviet Union, Brazil, Nigeria, the Philippines, India, Ecuador, Venezuela and South Africa.

In many countries throughout the world, says crisis consultant Mike Ackerman, head of the Miami-based Ackerman Group, “kidnapping is a fairly low-risk pursuit for criminals. Consequently there has been an increase in the number of kidnapping incidents.” And in countries where law enforcement agencies are relatively ineffective, such as Mexico, the problem is only aggravated, Ackerman adds.

Whereas kidnapping victims in the past have often been political rivals or government officials and the demands of the kidnappers have related in some way to their ideology, these days the victims are just as likely to be tourists or businessmen and the goal is much simpler: money. Recently, the ransom demands have grown. “There is a sort of natural inflation involved,” says Ackerman, who served for 11 years in the CIA s clandestine services unit before starting his own company. “If kidnappers make a big score, they want to repeat that score again.” Americans, because they are associated with wealthy, deep-pocketed corporations, are especially attractive targets.

In the absence of any coordinated governmental solution, the pragmatic, market-based response has been insurance. More than 60% of Fortune 500 companies now carry kidnapping and ransom (K&R) insurance for corporate employees, according to media reports. And hostage negotiation companies staffed with former agents from the FBI, CIA and similar agencies now partner with major insurance companies that carry K&R insurance, including Chubb, AIG, Travelers and Lloyd s of London. The Ackerman Group, for example, is on retainer with Chubb and is available to work for any Chubb clients that request its services.

The negotiations involved in kidnap and ransom cases tend to be unusually intense and drawn-out. “Corporate kidnap situations include a bizarre combination of white-knuckled, high-stakes bargaining and insurance adjustment negotiation tactics,” says Shell, who attended hostage negotiation training sessions at the FBI last summer. “It usually pays to be patient and to let professionals handle the negotiation process. Not only do experts know more about what to expect in different areas of the world, but they are less emotionally involved in the proceedings.”

Shell also notes that one of the stranger aspects of these encounters involves the often heated debates about the proper set of “comparables” to determine the “fair price” for a kidnap victim. The Abu Sayyaf guerilla army in the Philippines  the Muslim rebel group that abducted dozens of foreigners earlier this year  alluded to this phenomenon when, at one point, it demanded $10 million for its sole American hostage. “The group claimed that Libya s payment of $1 million per hostage for the release of 10  ordinary people set a benchmark for pricing the American at  10 times that amount,” says Shell. “Closer to home, if a firm pays $500,000 for an executive vice president in Mexico, the word will quickly spread to Colombia, where the price for an executive v.p. may rise to that level for firms within the same industry.”

K&R insurance generates between $125 million and $150 million a year in premiums worldwide, according to industry sources, and that figure is expected to rise, says one broker. “It s a growth industry. Premiums for the last five years have been fairly flat, but in the last year, because of an escalation in the number of kidnapping incidents, especially in Colombia, Mexico and Brazil, these premiums have increased.”

In general, employees are not aware that their employers hold K&R insurance. And almost all policies contain a confidentiality agreement since companies that purchase K&R coverage don t want this publicly known for obvious security reasons.

While K&R is usually a standard product offering for many corporations – most publicly-held companies either buy K&R insurance or self-insure – policies can differ. According to the National Underwriter, some policies may cover the expenses of hiring a hostage negotiator, for example; others might cover travel and accommodations for the victim s family and/or psychiatric and medical costs for the victim. Still others might include salary reimbursement or expenses for a public relations person, interpreter or forensic specialist, and so forth.

Meanwhile, Chubb recently announced that it is adding kidnap coverage as a standard feature to its U.S. homeowner policy. The policy covers up to $100,000 of kidnap-related expenses such as hiring a professional negotiator, but does not include coverage for ransom payments. Coverage applies to the insured as well as specified family members when they travel either in the U.S. or abroad.

“Our customers increasingly travel not just around the country but around the world,” says Chubb spokesman Mark Schussel. “There is a need for this extended peace of mind.”

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