Representatives for companies that specialise in various types of crisis management say that mounting concerns over the risks of kidnap for ransom, piracy for ransom, extortion, and the possible need to be evacuated in the event of a crisis or terrorist attack are driving growth, and leading them to introduce new products and expand into new areas.
Such products are often marketed side-by-side with emergency medical/medical evacuation cover, which most risk consultants regard as a no-brainer for anyone venturing into remote, far-flung parts.
The crisis brokers
The middlemen for such products are normally insurance brokers, though they can also be banks and insurance companies that offer the coverage as part of one of their own products, either for free or at an added cost.
Among the major brokers in this area are Marsh, a subsidiary of NYSE-listed Marsh & McLennan; Special Contingency Risks, a London-based subsidiary of Willis Group, the NYSE-listed risk management and insurance intermediary; Aon Special Risks; and London-based, AIM-listed THB, through its International Professional Risks division.
One increasingly well-known non-broker specialist in crisis management circles is Red24, an AIM-listed company that a number of major insurers and others retain to handle the hands-on business of advising and looking after insured individuals in dangerous areas. Red24’s professionals move in as soon as incidents, such as kidnappings, as well as emergency evacuation situations, occur.
Climate of anxiety
The 12-year-old organisation was ranked 37th out of the 50 fastest-growing UK-listed companies in growthbusiness.co.uk’s annual league table in 2010, and in the year ending last March saw its pre-tax profit leap by 18%, to £742,000, on revenue that grew by 22% to £5.3m. It posted a similar result in the six months to the end of September, with pre-tax profit soaring 36% on revenue that was 17% higher.
Most of Red24’s clients are corporate, though it does handle some high net worth individuals. Among its main accounts are Travel Guard, a Chartis affiliate that provides travel insurance, and HSBC, which offers Red24 coverage automatically to some higher-end clients, such as its Premier Account holders. Others tend to be multinational companies, whose employees often travel to, or live in, dangerous countries.
Jack Cloonan, head of special risks at Red24, explains that the Occupy Wall Street movement and similar campaigns around the world, as well as the various Middle East incidents in 2011 known as the Arab Spring, are creating “an undercurrent of anxiety among many high net worth individuals”.
He says this is even occurring in places like the US, which formerly regarded the ability of any of its citizens to accumulate serious wealth as a sign of the country’s prosperity and its money-making opportunities for all.
“As a consequence, some of those who have not taken precautions previously are revisiting the whole issue,” Cloonan notes.
Targets for attack
This is hardly surprising, he adds, since the new focus on wealth disparity in the US and elsewhere has caused many HNWIs “to see themselves as being the target of attack”.
Cloonan’s observations were echoed in a New York Times story last month, which noted that US citizens now enjoy less economic mobility than their peers in Canada and much of Western Europe.
The income gap
The article added: “The mobility gap has been widely discussed in academic circles, but a sour season of mass unemployment and street protests has moved the discussion toward centre stage.”
The New York Times story coincided with the release, also from New York, of results of a survey of mostly US-based single-family offices, which found that more than 80% are now offering their clients professional help in seeing that they and their families are safe – up from 60% in 2009.
At Red24, prevention accounts for much of what the company does for its clients, since, as Cloonan points out, people are often at their most vulnerable when they are “moving from point A to point B”, and stand to benefit significantly from some expert advice before they head for the airport – or even get dressed to go there.
“‘Flash’ is not good, you are simply asking for trouble, drawing attention to yourself. You want to lower your profile,” he says.
A quick look at some of the most recent statistics for kidnappings and similar crimes would certainly convince many people to leave their Louis Vuitton luggage and Rolex watch at home.
Red24 says the number of people kidnapped in 2010 was close to 30,000, almost 50% more than a decade earlier.
That said, reliable kidnap statistics are notoriously difficult to obtain, a Red24 report published last October points out, “primarily because incident classifications vary from country to country, and because many kidnappings are not reported to the authorities, for fear of retaliation by the kidnappers, or of police corruption, collusion or ineptitude”.
Nevertheless, the report continues, “it is clear, even from the limited statistics provided, that KRE [kidnap for ransom and extortion] is a crime that is growing, both in frequency and geographical spread”.
Meanwhile, while traditional hotspots of Mexico (“the global leader”), Venezuela, Brazil and Colombia continue to experience high kidnapping levels, the crime is also a “significant and/or growing threat in Iraq, Afghanistan, Somalia, Pakistan, [parts of] Northern Africa, Kenya, Nigeria, India, China, Yemen and the Philippines”, the Red24 report points out.
Richard Scurrell, executive director of Special Contingency Risks, notes that in addition to an increase in the number of “problem” countries, “the wave of political evacuations which followed the fall of certain regimes over the past year has led a lot of companies to re-evaluate the insurance programmes they have in place, and whether they may need new policies.”
Another trend Scurrell and Cloonan point to is a shift by kidnappers away from wealthy locals and high-ranking business executives, who have begun protecting themselves more, towards the easier pickings of the “middle and lower classes”, and such foreign nationals as oil company workers, journalists and humanitarian workers, missionary workers and foreign business personnel.
Of course, it is arguable how many missionary workers will be able to afford the stiff premiums kidnap and ransom insurance normally command.
Cost of premiums
According to Scurrell, such premiums can vary considerably – depending on such variables as the locations involved, travel, number of people being insured, and previous threats or incidents – but normally they range between $5,000 to $500,000 a year, for coverage ranging from $500,000 to a rarely-asked-for high of $50m. (These prices are not per person, but are in a range typically quoted for families and multinational companies).
While kidnapping cases get the headlines, and are often the reason HNWIs and companies initiate discussions with insurance brokers about coverage, many in the international crisis management industry emphasise that the types of crises they are most likely to get involved in have to do with health matters, natural disasters – such as floods, hurricanes, and earthquakes – terrorist attacks and sudden waves of political instability, which place policyholders in need of help with evacuation.
Scurrell says the industry may look to expand more in this area: “Evacuation planning, political repatriation and crisis management advice are in demand in a world of Arab Spring uprisings, and increased political volatility.
“KRE has probably developed about as much as it can as a product,” he notes.