In today’s global business economy, serious threats to personal and corporate security are frequent. Incidents like kidnapping are difficult to predict and when they occur they require a swift, organized and expert response … [S]pecialist Kidnap & Ransom insurance … helps companies and individuals navigate through these dynamic, complex and constantly changing scenarios. We offer specialized knowledge and a wide range of insurance coverages to help clients manage their risk landscape. The financial impact of a crisis can be severe on any company or family … Kidnap & Ransom insurance policy aims to take away this burden by reimbursing all associated costs incurred both during and after the event.
XL Catlin Kidnap & Ransom
The advertisement above—taken from a kidnap insurer’s website1—describes the world’s trickiest transaction and the emotional rollercoaster of trading in human lives as a mere business risk. In the insurance world, kidnapping is not portrayed as a matter of life and death, but as a formidable yet manageable commercial problem.2 The financial burden can be ‘taken away’ by insurance, available from a wide range of suppliers. There is reasonable justification for this counter-intuitive assessment of kidnap for ransom. Very few insured people are kidnapped, and if they are almost all of them come home alive.
When we read this advert through the lens of protection theory, we begin to understand why. If one knows the local power dynamics, kidnap risks are both predictable and manageable. Kidnap insurance comes with detailed specialist advice on how to ‘navigate [the] dynamic, complex and constantly changing’ security environment. The customers’ risk landscape is not a given, but it is ‘managed’ by professionals. In the event of a kidnap, the insured rely on an ‘organised and expert response’ to resolve the incident. Industry insiders have created a reliable and robust protocol to order the trade in hostages. Yet, somehow the (p.60) existence of reliable arrangements to facilitate ransom payments and retrieve hostages does not lead the insured to take avoidable risks. Neither has it caused an escalation of abductions among those likely to have insurance.
This part of the book shows that insurers take a very hands-on role in managing the opportunities, behaviour, and the financial incentives of all participants in the hostage trade. Without this massive private governance effort, it would be impossible to create profitable insurance products for this fiendishly complex risk. Governance is provided on five different dimensions: (1) Managing opportunistic behaviour by the insured; (2) reducing kidnap risks by ordering the interaction between the insured and local elites; (3) encouraging ransom discipline; (4) facilitating a smooth trade in hostages; and (5) preventing opportunistic behaviour by insurers that might endanger the stability of the market.
Chapter 4 looks at kidnap insurance in detail: what exactly are you buying when you purchase a kidnap for ransom policy? Where can you buy it and under what conditions? I introduce the many agencies working alongside the specialist insurers to help the insured avoid being kidnapped and retrieve them safely and cheaply if a kidnap occurs. Kidnap prevention is very much Plan A in this business. Chapter 5 therefore studies the intriguing question of how an insured firm or individual can obtain protection from an extra-legal protector. How would such a protection contract be enforced? And how do you mask the arrangement from those who would consider it to be ethically or politically problematic that you are paying protection money?
Chapters 6 to 8 look at kidnap resolution. The first problem is setting a price. What is the ‘right’ price for a life? For the insurer it is the minimum price that safely returns the hostage. Furthermore, the ransom negotiators must avoid creating incentives for kidnappers to torture, mutilate, or murder hostages to drive up the ransom. Finally, the negotiation is conducted by the family or firm, rather than insurers or their agents. How can one control a highly stressful negotiation conducted by proxy? Chapter 6 focuses on the protocol designed to resolve these issues, while Chapter 7 analyses the transcript of a pirate negotiation to show how the theory is applied in the messy real world. Once the price is set, there is still the problem of effecting the transaction. How is the ransom paid to the right addressee without being intercepted by the authorities, rival gangs, or opportunistic passers-by? How does one avoid the messenger being kidnapped, and why would the hostage be released after payment? Chapter 8 describes and analyses the host of specialists and protocols designed to facilitate this tricky exchange.
(p.61) Chapter 9 draws together all these threads by analysing the complex governance architecture ordering kidnap for ransom. It is a classic polycentric governance system as studied by the Nobel Prize-winning economist Elinor Ostrom.3 Insurers do not directly manage their customers’ risks or resolve hostage crises. This is the domain of highly specialized firms, that in turn subcontract or deal with other specialists, some of them in the economic underworld. The protocol is only stable because the market is highly concentrated. There are only three or four major providers of kidnap for ransom insurance in the world, and a total of around twenty counting the smaller providers. All of them are Lloyd’s syndicates, operating in close physical proximity in the Lloyd’s underwriting room at Lime Street in the City of London.4 At the heart of kidnap for ransom insurance is a private members’ club. This club governs the behaviour of its members for their mutual benefit—as well as the benefit of those wishing to travel, research, work, and invest in the many areas of the world that are informally governed.5 Part III of the book shows that without such club governance the market for hostages becomes very problematic, as evidenced by the terrible fate of terrorist hostages. (p.62)