Ian Harrison takes a look around the world at the changing hotspots for kidnap and ransom risk.
With the news full of fighting in Lebanon, Afghanistan and Iraq, the ever-present threat of kidnap for ransom is as topical as ever. US and Western businessmen, other foreign workers and aid workers operating in these regions live with the constant threat of being kidnapped, whether for politically motivated means, or by criminals looking to extort money from what are perceived to be wealthy Westerners.
The world's kidnap "hotspots" tend to fluctuate depending on the political situation in these countries. What is interesting to note is that with world oil consumption growing there is a danger that kidnappings will increase. This is because oil reserves in the less dangerous areas of the world are beginning to dry up, which is forcing the oil companies (most of which tend to be Western) to venture into areas that are potentially more dangerous for their workers. This will drive up the requirement for kidnap & ransom insurance (K&R) and new markets are already opening up to service this increase in K&R demand. The Catlin Group's recent appointment of Neil Evans and David Burke to set up a crisis management underwriting team, to specialise in writing K&R and product recall business, is evidence of this.
There are a number of emerging danger areas in the world which can be assessed for potential K&R implications.
Generally rates for K&R cover in Latin America are falling. This is particularly true in Colombia, which is now more politically stable. Brazil is a similar story. With greater political stability and a burgeoning economy, the K&R rates have stabilised and in some instances have even reduced.
However, this is not the case across the whole of Latin America. Venezuela, Bolivia and Ecuador are the new kidnap hotspots. Each of these countries have governments that are taking a vehemently anti-US stance, despite the fact that they need US workers to provide specialist expertise to maximise on the potential revenue their natural resources can provide. By turning a blind eye to a number of kidnap and extortion incidences against US/Western workers, these governments have unofficially endorsed the kidnappers' actions and this has fuelled the criminal/guerrilla groups who use kidnapping purely for financial gain. As a result, demand for cover is growing and consequently this is pushing rates higher.
Since the July elections in Mexico, which was narrowly won by conservative ruling party candidate Felipe Calderon, political unrest is growing as thousands of Andres Manuel Lopez Obrador's supporters take to the streets in an attempt to overturn the tight election result.
Due to the current political situation, crime is on the increase, primarily against local wealthy families, but US/Western businesses and workers operating in the region are also targets. This increasing political unrest is already raising the demand for K&R cover and prices are being affected.
Middle East/Asia Minor
The K&R market for the Middle East is still dominated by Iraq. However, the current situation in Afghanistan has increased the kidnap threat to aid, reconstruction workers and the media teams operating in this country. K&R cover for Iraq and Afghanistan is available in specialist markets, but it comes at a price and with a reduction in the scope of cover, such as deletion of personal accident benefits arising from an insured event.
The situation in Lebanon has not yet directly affected K&R prices. However many K&R policies include repatriation costs in the event that a government issues a warning recommending its nationals to leave a defined country due to a high threat level. So events in Lebanon could still impact on the K&R market. However, the country has been considered by the US and European governments as a potentially dangerous area for some time, so it is not anticipated to have a significant impact on the market.
The major K&R danger areas in Africa continue to be where the oil/natural resources are located. The situation in Angola has improved, but Sudan and Nigeria are particularly dangerous at the moment. In Sudan, active oil exploration is taking place in a war zone and the Niger Delta is an increasingly violent and hazardous place to operate. Earlier this year, the various tribal factions, who previously fought each other, joined together to form the Movement for the Emancipation of the Niger Delta (MEND). MEND has been responsible for a number of attacks, abductions and kidnappings against oil companies' workers operating in the region. Demand for K&R cover in these countries remains high and prices are at a premium.
The prices remain stable across most of the Asia Pacific region, the main exceptions being the Philippines and in particular South Midanao, where Muslim separatists are active. The other area with an increased threat of K&R incidences is Sri Lanka, where civil war continues to rage with the Tamil Tigers.
The risk of kidnap remains fairly static across the region, but crime in some of the old Eastern Bloc countries remains high with the influence of organised gangs still strong. The biggest threat to US/European companies and their workers remains extortion and this can be included in a K&R policy. However, rates for these countries are likely to remain stable.
Discussions about rates and wordings tend to obscure the principal benefit that clients look for in a K&R policy; namely access to the best expertise in advising on how to handle these extremely stressful and life-threatening situations. This is by far the most critical issue in choosing K&R insurance.
London underwriters have a unique selling proposition through their exclusive access to specialist security companies. Hiscox has Control Risks Group and APJ uses Henderson Risk Consulting. These companies offer specialist help, when it is most needed, as well as having the ability to tap into the London-based global security industry.
Traditionally, the big brokers have dominated this sector, but post-Spitzer and the new climate of broker commission transparency, they are in the process of evaluating their business structures. As a result, there is a more level playing field, which is presenting opportunities for independent and specialist brokers. However, K&R remains a highly specialised field, and not one for the inexperienced broker to dabble in.
What is certain is the world in 2006 is a dangerous place and with globalisation continuing a pace, oil companies having to operate in more dangerous locations and the increased levels of religious tensions and military involvement in the Middle East, the requirement for K&R cover will remain high on the corporate agenda for the foreseeable future.
- Ian Harrison is director of programmes & facilities at Miller Insurance Services and a specialist kidnap & ransom insurance broker.
COUNTRIES CURRENTLY ON THE US DEPARTMENT OF STATE OFFICIAL TRAVEL WARNING LIST]
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