The First Rule of Fight Club: The Insurance Coverage No One Discusses (Kidnap and Ransom Insurance)

An earlier version of this article was published on Forbes.com.

Kidnap and ransom (K&R) insurance is the corporate insurance that no one talks about—for good reason. Telling potential kidnappers that you have such an insurance policy (often referred to as a “special risk” or “special contingency” policy) is the equivalent of painting a target on your back.

However, the result of this secrecy is that executives and even risk managers can be woefully under-informed about this important part of a company’s well-designed commercial insurance program.

A question I get often is whether K&R insurance is really necessary. After all, most of the high-profile cases of executives being kidnapped for ransom happened decades ago.

Although it is admittedly difficult to obtain accurate statistics on kidnapping for ransom, the reality is that businesspeople sometimes face perilous personal physical risk.

For example, in October 2022, the Venezuelan government finally freed five American Citgo executives held in detainment for nearly five years.

The globe doesn’t seem to be getting more peaceful (just read “The End of the World Is Just The Beginning: Mapping the Collapse of Globalization” by Peter Zeihan).

As corporations continue to explore international market growth, and as socioeconomic and political factors continue to heat up across the globe, mitigating personal physical risk while conducting business abroad is a smart move for any director or officer.

In this article, I’ll cover why K&R insurance is a key part of risk mitigation for directors and executives, as well as what a K&R policy usually does and does not cover.

The Vital Role of Kidnap and Ransom Insurance

K&R policies provide coverage to employees, officers and directors as well as their relatives and guests.

As such, K&R policies provide peace of mind for individuals and their families, especially in various circumstances as they travel abroad—including simply having to be evacuated from an area due to security threats like political unrest.

Also, K&R coverage is not limited to foreign business trips or even just business trips. K&R policies also provide coverage for personal trips, both domestic and foreign. In addition, a K&R policy will respond if you, a resident of your home (your family) or a guest in your home is kidnapped for ransom while at your residence, even in the US.

The moment the insurance carrier receives notification that an insured person has been taken, the carrier will quickly mobilize specialized resources to safeguard the insured.

This rapid response can include everything from conducting hostage negotiations and coordinating emergency evacuations to arranging necessary medical care and beyond.

After someone has been taken is not the time to find an experienced hostage negotiator or attempt to coordinate an emergency evacuation from a remote location.

You do not want to waste time attempting to cobble together the right resources. In these situations, having expert resources working to protect you or those you care about is priceless.

Also, K&R insurance coverage is surprisingly broad, and that is what I’ll discuss next.

K&R Policy Coverage Overview

A K&R policy typically offers the following coverage:

• Kidnapping: Coverage for ransom payments to secure the release of a kidnapped individual. (See more of the fine print regarding ransom coverage later in the article.)
• Hijacking: Coverage for situations where a person or group seizes control of a vehicle, for example, an aircraft or a ship, and demands ransom or other concessions.
• Hostage negotiation: Coverage for the services of a professional negotiator to secure the safe release of a hostage.
• Emergency evacuation: Coverage for removing the insured victims from remote, often difficult-to-access locations.
• Detention: Coverage for instances where an individual or group is wrongfully detained or imprisoned, often with demands for ransom or other demands for release.
• Extortion: Coverage for threats made by individuals or groups to harm a person, damage property or reveal sensitive information unless their demand for money, property or services is met.
• Travel security evacuation: Coverage for expenses related to evacuating individuals due to security threats, such as a government advisory, political unrest or seizure of the company’s assets or if the insured is expelled from a country (when the insured person isn’t a resident of that country).
• Additional coverage: Policies vary, and many also provide coverage for things like expenses related to bodily injury, accidental death and funerals, medical care, including psychiatric and mental health care for rehabilitation, the cost of public relations services, crisis management costs, business interruption and loss of income, and travel and accommodation costs.

K&R Policy Exclusions

It is useful to understand what is not covered by a K&R policy. Some exclusions you might expect to see in a standard policy include the following:

• Countries that your policy says are excluded from coverage.
• Fraud, i.e., the victims were part of the scheme to share in the ransom.
• If a geographic location goes from not being a threat to a war zone or something else significant, then expect the K&R policy to respond in the short term—but know that securing coverage in the long term may be difficult as the situation escalates and you continue to operate there.
• Detention for failure to possess the correct visas and authorizations.
• Detentions that result from violating host country laws if the acts in question would also violate the insured’s home country’s laws or the laws of the company’s headquarters. There would be coverage, however, when it’s clear that charges have been brought maliciously, for political purposes or are otherwise trumped up.
• Abduction, which is to say taking a person without a ransom demand, is typically not covered unless there is a specific extension to the policy. Consider, for example, the situation where a former spouse abducts a child. A typical K&R policy won’t respond, but you may be able to get a child abduction extension.
• Any sort of cyber extortion or ransomware event. K&R carriers today are clear that they expect cyber policies to respond to ransomware events, not K&R policies.

Policy Conditions

While exclusions take coverages away, conditions are limitations on the insurer’s ability to perform. K&R policies have at least two conditions worth mentioning:

• The first is that the policy will not respond if doing so would violate any trade or economic sanctions or other laws that might prohibit this type of insurance.
• Another one is what I’ll call the “Fight Club” condition because it is all about the first rule of “Fight Club.” Specifically, a condition of the policy is that the company and individual insureds must limit any knowledge of the existence of the K&R policy as much as possible. Advertising that you have a K&R policy would violate this condition, causing the policy not to respond.

How Much Does a K&R Policy Cost?

Pricing for these policies will vary, as one would expect. It’s also not surprising that companies that have operations in the more challenging parts of the world will face higher premiums.

Having said that, given the coverage afforded, K&R policies for most companies are surprisingly affordable. In addition, multi-year policies are often available and yield additional savings.

Of course, a company always has to balance the price of insurance against the risk covered. Companies will want to work with an insurance brokerage that is experienced in placing these policies when exploring the possibility of this important insurance coverage.

Most companies and their boards of directors feel a great responsibility when it comes to protecting their people. The decision to purchase a K&R policy, once the pricing and scope of coverage is understood, is usually a very easy “yes.”