Kidnap and Ransom Insurance

Kidnap and Ransom insurance (K&R) is used by corporations with very important key executives. It is essential to have a policy in place to compensate the company if an integral member of the company should ever be the target of a kidnap and ransom attack, or a hijack. The vast majority of companies do not need K&R insurance. The need for this insurance is dependent upon both the key individuals at an organization and the exposures they face.

Importance of Select Individuals

In order to justify the expense of a K&R policy, a company must have one or more individuals whose role is crucial to the day-to-day operation of the company. These individuals sustain the organization and could not easily be replaced. As a result, they are natural targets for kidnapping attacks. On the personal level, K&R insurance may be valid if one or more individuals in a family could present access to a large amount of the family's wealth. This would make the private individual a target of an attack. In situations where importance is shared by multiple key executives, or a family is not at risk of monetary loss, K&R insurance may be wasteful.

Exposures to K&R

Another important factor to ask is whether or not the key individuals mentioned are exposed to situations where K&R could be a viable threat. Namely, individuals traveling to dangerous parts of the world should be concerned. K&R policies are most popular in Mexico, South America, Africa and Russia. Certain countries within these zones have high numbers of kidnappings in a given year. For example, Nigeria has a relatively high kidnap rate. If your key executives are traveling through these zones, or doing business in these areas, they may be particularly exposed to K&R liabilities.

Indemnity Protection

When a K&R policy pays out, it indemnifies two specific parts of the cost. If ransom is paid out by a business or individual, a K&R policy will repay this ransom. The policy will not pay the ransom directly. The second area that may be indemnified includes costs incurred if the individual who has been kidnapped is harmed in any way, including disablement or death. If so, the business could be in a very compromised state, needing to replace key leadership at a high expense. The K&R policy will quantify this value and repay the insured.

Purchasing K&R

If you think you need K&R insurance based on the above considerations, speak directly with your current insurance company. K&R lines are offered under a portion of insurance specifically designed to cover liabilities to key executives. This may be included in a "directors and officers" policy or corporate governance policy. It is not typical to have a K&R line of coverage on a standard property and casualty insurance policy. However, you may be able to purchase K&R through the same company you purchase your P&C insurance from. Bundling lines will typically save you costs if the insurance company offers quality coverage in both areas.

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