What Is Kidnap Insurance?

As its name suggests, kidnap insurance is a type of insurance product that provides coverage for potential damages related to kidnapping. Examples of the kinds of damages commonly covered by kidnap insurance include extortion, ransom, medical costs, and travel-related expenses.

Kidnap insurance is often purchased by corporations and high-net-worth individuals working or traveling in parts of the world that have high rates of kidnapping.

Key Takeaways

  • Kidnap insurance is a type of insurance that protects against costs related to kidnappings, such as ransom, medical expenses, and legal fees.
  • It is commonly purchased by wealthy corporations and individuals operating in countries with high rates of crime.
  • Companies may be required to purchase these insurance protections in order to fulfill their legal duty of care obligations toward their employees.

How Kidnap Insurance Works

Unlike other products such as automotive or home insurance policies, most consumers may never have heard of kidnap insurance. For the most part, this type of insurance is used only by multinational corporations who operate in countries where kidnapping is a relatively common crime, such as Nigeria, Haiti, and Venezuela.

Companies in certain industries tend to be targeted more often than others, and thus also often purchase kidnap insurance to protect their officers and employees. Examples of such industries include oil and gas companies, mining companies, and maritime operations.

Fundamentally, the mechanics of kidnap insurance are the same as any other type of insurance product. The insurer uses actuarial data and statistical methods to estimate the likelihood that the policyholder will be kidnapped, as well as the probable costs if that crime were to occur. The insurer then uses this information to calculate an insurance premium that should be profitable when applied to a portfolio of kidnap insurance policies.

To calculate this premium, the insurer considers factors such as the crime statistics of the countries in which the policyholder will be operating, the type of business that the policyholder is involved in, the length of time that the policyholder will be staying in the high-risk areas, and the policyholder’s wealth and income.

From the perspective of the policyholder, purchasing kidnap insurance is a good way to ensure compliance with the duty of care obligations that employers have when deploying employees into high-risk areas. From a legal and moral perspective, employers must take reasonable steps to ensure their workers do not suffer any harm when carrying out their assigned tasks. Failing to do so could lead to lawsuits and substantial damages. By purchasing kidnap insurance, providing adequate training, and taking other preventative measures, employers can manage this liability.

Example of Kidnap Insurance

Michael is the owner of a mining company that has recently purchased land in a small and relatively impoverished nation. Although most of the mine’s workers will be employed from the local community, a small number of the mining company’s executives will also be staying at the mine during its first several months of operations. 

Unfortunately, the country in question has historically seen high rates of kidnapping and other crimes, particularly those targeting wealthier individuals. For this reason, Michael decides to purchase kidnap insurance to help protect his employees against this risk. If any of his personnel are kidnapped, this insurance policy will cover costs such as ransom, necessary security services, legal costs, medical expenses, or travel arrangements.

Although this insurance policy will add to his expenses and thereby decrease the profitability of his operations, Michael believes that this is a necessary investment in order to avoid the risk of any catastrophic liabilities and to fulfill his legal and moral duty of care toward his employees.