Hedge Against Ransom

Kidnaping businessmen and forcing their employers to pay ransom has become a prime tactic of radical political groups, especially against U.S. companies operating in Argentina and other Latin American countries. The vulnerability of corporations to this kind of attack by revolutionaries or run-of-the-alley hoodlums even in the U.S. has been starkly dramatized recently by the abductions of Publishing Heiress Patricia Hearst in California and Newspaper Editor John ("Reg") Murphy in Atlanta. As a result, more and more companies are being spurred into buying a form of insurance policy that was all but unheard of a few years ago, and even today is hardly ever discussed openly: ransom insurance for executives.

Though a wide range of manufacturers, banks and retail chains now hold ransom insurance on their key personnel, the companies tightly guard the identities of those insured. Most insurance firms, for their part, commit holders of ransom policies to absolute secrecy. Often the insurers require that knowledge of the policy be limited to the top three or four officers of a company and reserve the right to cancel if the company discloses the existence of the insurance. The reason is obvious: knowledge that an insurer stood ready to pay, say, $4 million to ransom a key executive would make that executive an even more inviting target for kidnapers than he would otherwise be. Indeed, many executives are covered without being aware of it themselves.

Lloyd's of London is the only insurance group that openly admits to issuing kidnap policies. In the past several years its premium income on ransom insurance has jumped from less than $1 million to about $7 million a year. The policies cover the ransom demand itself and the often high cost of negotiating with the kidnapers. Some executives are insured for up to $20 million at a cost to the company of $100,000 in premiums over three years. The average coverage for one person ranges between $2 million and $5 million and costs between $5,000 and $7,500 a year. The group has recently signed up six major multinational firms, and is investigating applications from 20 more.

Though many American insurance companies also issue ransom insurance, they have good reason for denying it. Unlike Lloyd's, U.S. insurance companies must register their forms and rate schedules in the public files of state insurance departments. Thus would-be kidnapers could easily determine which firms issue ransom insurance, gain illegal access to the company's files and find out to whom the policies are issued. So American insurers often euphemistically label ransom coverage as robbery, physical-damage or personal-injury insurance. Some ransom clauses are buried in riders on bankers' bonds, which insure companies against embezzlement or other theft by corporate officers. By whatever name it is called, however, the increasing popularity of ransom insurance underscores the growing, and all too justified, fear of kidnaping.

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