Olivetto’s ordeal was less dramatic than the scene in the Warner Bros. 2001 movie Proof of Life, in which a professional hostage negotiator, played by Russell Crowe, attempts a guns-blazing rescue of an American businessman, kidnapped by antigovernment terrorists in Colombia while driving to work. The real-life 1994 kidnapping of Thomas Hargrove, which inspired that movie, dealt a near-lethal blow to Hargrove’s father’s estate, because Hargrove did not have a K&R policy. Only after two ransoms did the Colombian narco-guerrillas of the Armed Revolutionary Forces of Colombia, the main terrorist and drug group in Latin America, give him up. Certainly, however, the reality behind the movie has provided plenty of marketing ammunition for insurance companies such as Lloyd’s, AIG and Chubb, which sell K&R policies to wealthy individuals.

Insurers and security experts argue that most of us should have a personal risk management plan, just as we have sophisticated estate and investment plans, and K&R insurance may be an appropriate part of it. It should be based on a clear-eyed assessment of our potential exposure to the threat of kidnapping. The impetus for developing such a plan has grown since 9/11; prior to that, many believed kidnapping and terrorism were not a risk unless we traveled to abduction hot spots such as Colombia or Mexico City, or to terrorism-risk zones like the Middle East. But wealth advisors say the overall growth in animosity toward Americans abroad, coupled with the heightened awareness of security risks in general at home, has led to a rise in anxiety among many of us who travel on a regular basis, and even at home for those of us who feel that our wealth makes us a target for kidnappers. “What’s changed is that clearly people today are more keenly aware of security risks,” says Henry Greenberg, director of wealth strategies at Fleet Private Clients Group, a division of FleetBoston Financial in Boston.

Premiums, while high, are hardly ever the determining factor when we consider K&R insurance. Rather, we need to consider our personal risk profiles, which include not only our exposure to risk, but our appetite for it. Some people with only a small risk of being kidnapped are significantly unnerved by it; for them, the premium is money well spent. Others are sanguine; for them, the policy may be superfluous.

TOP VIEW Growing animosity toward Americans around the world and the heightened awareness of personal security issues in the wake of 9/11 have prompted many of us to consider kidnapping and ransom insurance. To decide whether we need this type of policy, we should consider the nature and extent of risks we face and whether we currently have the resources to pay a ransom without imperiling our estates. Perhaps most importantly, we should consider our visceral reaction to security issues—that is, how much we value our peace of mind.

Generally, K&R policies are most appropriate for high-profile individuals, such as celebrities or wealthy businesspeople in the public eye, and those who travel to places where kidnapping is common, including Brazil, Colombia, the Philippines, Mexico and Russia. (Indeed, these countries are generally more likely to harbor kidnappers than those in the Middle East, with the exception of Yemen.) If we travel on business, our companies will often provide the coverage we need; however, we should understand the extent of coverage and any unusual provision—say, opt-out clauses for travel to certain highly dangerous venues—in our corporate policies before we travel.

Closer to home, it is tempting to think that only celebrities are targets. But insurers say this is not the case; indeed, celebrity abductions usually attract the most media (and police) attention, which is often what kidnappers want to avoid. Celebrities also typically have professional security staff. More typical are kidnappings of lower-profile but nonetheless wealthy individuals, often in mundane locales like suburban Connecticut. Edward Lampert, the chairman of hedge fund ESL Investments, was kidnapped in January 2003 in his office parking garage after his captors found his name on the Forbes 400 list of wealthiest Americans, with a net worth then estimated at $800 million. He luckily escaped harm when his captors, who turned out to be something short of masterminds, used his credit card to order a pizza and were quickly rounded up.

Premiums and Profiles
Premiums for this coverage depend on a person’s risk profile, according to Ross Buchmueller, president of AIG Private Client Group. Insurance agents are notably closed-mouthed about the actual numbers, but Buchmueller says the annual premium can range from tens of thousands of dollars for someone who has a low-risk profile—but who might nevertheless want to be insured on occasional trips to Caracas—to hundreds of thousands for high-risk individuals, a term that can include not only those who travel frequently to hot spots but also to people in the public eye: prominent executives, habitués of the A-list party circuit, and heirs who indulge in Paris Hilton-style exposure. Buchmueller says for most of us, $5 million to $10 million worth of K&R coverage is adequate. FleetBoston’s Greenberg puts the top figure a little higher: “A rule of thumb is that $5 million to $25 million of coverage is enough, independent of net worth.” 

Most wealthy individuals are less concerned with the premium and manuscript of the policy than they are with the advice they receive.

Despite growing awareness of them, K&R policies remain relatively rare. Buchmueller estimates that fewer than 5 percent of wealthy individuals purchase kidnap and ransom insurance. Some of us, he notes, may feel that just buying one of these policies will make us a target for savvy kidnappers who somehow discover that we are covered. “Many probably feel safer not buying it,” Buchmueller admits. Also, we must keep these policies secret; they usually have a provision that allows the insurance company to refuse to pay if it can prove the insured told anyone about the insurance.
 
Holistic Appeal
We should weigh these drawbacks against the advantages of the policies, which go beyond the peace of mind of knowing that a ransom will not wipe out our estate. Most K&R policies cover not only the ransom, but items such as the cost of hiring a professional negotiator to free the hostage, counseling for family members and the victim, and medical conditions related to the kidnapping. Insurance companies also review our security arrangements with the help of top-rated security firms. AIG, for example, uses Kroll Associates, the well-known global detective agency; Lloyd’s uses the Controlled Risk Group and Chubb uses Ackerman and Associates.

“One of the things that comes with kidnap and ransom insurance is not simply the insurance coverage but also an assessment of a family’s security risk,” says Brian Jenkins, an expert on kidnapping and terrorism and an advisor to Rand, a think tank in Santa Monica, Calif. “In the course of that inquiry, the family will be told of any specific vulnerabilities.” If we agree to a security survey and assessment, and then adopt and abide by the recommended measures, we can often get the insurance at a reduced cost. Jenkins notes that most wealthy individuals are “less concerned with the premium and manuscript of the policy” than they are with the advice they receive.

Some people with only a small risk of being kidnapped are significantly unnerved by it; for them, the premium is money well spent.

Solo Safeguard
Because the risk of kidnapping is fairly low, especially if we take measures to protect ourselves, many of us are deciding to self-insure. In other words, we set aside enough assets to cover a ransom and to pay security specialists in the event of a kidnapping.

“For a family in the U.S. which does not travel outside the country, [buying a policy] probably is not going to be worth it,” says David Little, a security consultant with Sheldon Little Associates in London, the firm that negotiated for the release of Hargrove. “If something does happen, they probably have enough money to foot the [ransom] themselves,” he notes. “Self-insurance can be a more efficient way of insuring,” Greenberg agrees. “You have to weigh your ability to pay versus the cost of coverage.”

Olivetto, the Brazilian advertising executive, took this approach after deciding that some lifestyle changes—traveling with bodyguards, for example—are enough to protect him. The heirs to a billion-dollar fortune in the United States, who wish to remain anonymous, also go without the insurance because they can afford to self-insure, a family advisor says. Most demands for ransoms are in the $5 million to $25 million range, amounts they could easily afford. They do take personal safety precautions: They travel by private jet; lead low-profile lives; attempt to keep out of the top hits on Web search engines; and they never consent to being quoted by name in the media.  

To insurers these precautions boost not only our safety, but their bottom lines. 

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