Chris Beck

After the recent kidnapping of an American ship captain by pirates off the Somali coast, many people wondered, how could this happen? The reality is that it occurs more often than you think.

Expatriates working overseas are frequent targets of kidnapping, particularly as globalization takes business to new corners of the world. Thousands of kidnapping cases occur worldwide every year and as current events show, this number is only growing.

As many have noticed, there is currently an intense focus on Africa and the region surrounding the Gulf of Aden due to the recent increase in piracy and kidnapping, but this is certainly not a new problem.

The International Maritime Bureau reports that in 2008, Somali pirates seized 815 crew members. The threat has long existed and incidences are increasing in many countries, including Afghanistan, Mexico, Pakistan, the Philippines and Venezuela.

An Italian expatriate was abducted on April 9 in the southeastern Nigerian state of Ebonyi. Armed gunmen seized the man on his way to a construction site where he was working under government contract. Although less publicized, hundreds of expatriates and Nigerian workers have been kidnapped in just the past three years. According to the 2008 Kidnap Risk Brief published by Clayton Consultants, Inc., at least 172 foreigners were kidnapped in Nigeria alone in 2007.

The risk level for kidnapping remains high in Latin America and Africa, but Central Asia is seeing dramatic increases, particularly in Afghanistan and Iraq. However, the majority of kidnappings are still occurring in Latin America. In most cases, the ransom is paid and the victim is safely released, but according to The Inkerman Kidnap and Ransom Monthly Review, kidnap victims killed showed a 7 percent increase in January 2009, up to 19.3 percent.

Expatriates working abroad face a credible risk in areas away from home where their companies cannot protect them. Organizations and financial institutions with a significant global presence can be targeted for ransoms ranging from thousands to millions of dollars. While it may seem rare, kidnapping is a thriving, corrupt business that is more common than companies would like to admit.

Although the United States government recently intervened in negotiations to rescue the American ship captain kidnapped by Somali pirates, governments are rarely involved in these cases. Without the leverage of a powerful government and military, insurance becomes increasingly important to an organization’s ability to independently and expeditiously resolve kidnappings.

Companies often avoid discussing kidnap and ransom insurance coverage because they do not want to publicly highlight the risk and therefore, their viability as potential targets. Many organizations that operate in high-risk countries and send executives overseas carry this insurance. However, companies rarely discuss it unless asked and most employees would not know to inquire in the first place, unaware that this type of coverage is even available.

There are compelling economic and ethical reasons for companies to invest in kidnap, ransom and extortion insurance since ransom demands can be staggering, particularly in the struggling global economy, with more than 14 countries recording demands of more than $25 million in recent years. Cases are usually settled for between 10 and 20 percent of the demand, but in certain countries, kidnappers refuse to negotiate and resort to excessive violence until it is met.

Most policies cover the ransom, crisis management team expenses, and fees incurred while using an independent negotiator or public relations consultant. This coverage helps mitigate the financial and human costs associated with kidnapping by providing necessary services to ensure a safe, speedy and satisfactory resolution.

Companies cannot afford to deny the threat that kidnapping poses to their operations and employees. From an insurance perspective, it is imperative that they put mechanisms in place to safeguard against these risks, particularly as we work to grow and stabilize the global economy.

Chris Beck is vice president of insurance sales at Clements International Inc., a Washington-based provider of insurance for expatriates, international schools, multinational businesses and relief organizations.