Under Wraps

Iraq – An engineer and two workers are killed, while two other workers are kidnapped, when gunmen linked to al Qaeda launch an attack on a Korean Gas Company operation in the Akkas gasfield in western Iraq.

Indonesia – A 61-year-old British oil worker with Medco E&P is kidnapped by an armed group in Aceh as he travels from the mine site back to his home.

India – Criminals posing as Maoist militants abduct the supervisor of a private mining company in Garla mandal. He is still missing.

Papua New Guinea – Kidnappers take Gu Yuxiang, CEO of RAMU NiCo Management Ltd. and demand a ransom of US$175,600. Driven to a remote area, he is tortured, but manages to escape.

These kidnapping and ransom incidents have occurred within the last six months, as reported by Unity Resources Group, a global organization that helps companies to mitigate risk in their foreign operations.

GROWING ENTERPRISE

These incidents represent the proverbial tip of the iceberg. Kidnapping and ransom is a growing criminal enterprise, and the officers, directors and employees of Canadian companies in the extractive industries – mining, oil and gas – are increasingly the target. “Our top 20 ranked kidnapping countries all have significant natural resources and have drawn considerable interest or commitment from resource sector companies. But they also possess high to extreme country security risk ratings and moderate to extreme kidnap risk ratings,” notes a report published in July by Unity Resources Group.

There are a number of factors contributing to this trend. One is simply increased global demand for resources, and the resulting bonanza of new business opportunities for Canada. More than three-quarters of the world’s mining and exploration companies are headquartered here, and the country’s mining companies operate in more than 100 countries around the world.

Rich in resources but underdeveloped, many of these markets are precisely the kind of challenging yet lucrative environments that are attractive to Canadian mining companies and their shareholders.

GROWING THREAT

The increasing rate of kidnapping and ransom incidents is being fuelled by war, terrorism, economic crisis and political unrest. Civil war in Somalia has spawned a rash of piracy off the Somali coast. The recent military coup and subsequent international intervention in Mali has increased the risk of kidnapping in the region. In nearby Nigeria, the Jihadist terrorist group Boko Haram is waging a campaign to establish an Islamist regime across the country. The list goes on.

A disturbing trend seems to be developing – the use of kidnapping and ransom by insurgent militias and terrorist organizations to raise both money and profile.

Despite the increased risk, kidnapping remains in the shadows. Given the nature of the crime and the instability of the regions in which it occurs, statistics are very difficult to gather. Often victims are reluctant to report a kidnapping because of fear of retaliation from kidnappers themselves or police corruption. As well, some countries either refuse to publish or downplay kidnapping statistics to protect their international reputations.

The resolution of a kidnap incident is, of course, fraught with difficulty and conflicting interests. Gary Noesner, retired chief of the Federal Bureau of Investigation’s Crisis Negotiation Unit, was recently quoted on this subject in a 2013 Forecast by KR Magazine, a publication dedicated to identifying global trends in kidnapping for ransom. “Governments often feel that the payment of a ransom encourages future kidnappings. While true, failure to bargain or allow a family or corporation to pay a ransom usually condemns the victim to prolonged captivity or even death.”

MITIGATING THE RISK

Companies can mitigate the risk to their employees and contract workers by purchasing kidnap and ransom (K&R) insurance. Coverage can range from $500,000 to $20 million, and can last from two days to two or more years. Policies are customized to each situation.

Some companies provide these services directly while others work in partnerships. Burns & Wilcox Canada, for example, provides the insurance, while Unity Resources Group would respond by flying in a crisis response team to provide expert counsel and support as the kidnapping incident unfolds and in its aftermath. Unity Resources also has field agents in hot spots around the world who can report daily on local events that could increase kidnapping risks, reports that can be made available in real time to K&R insurance customers.

Despite the growing risk of kidnapping and the compelling case for mitigating the risk with insurance, K&R insurance is both undervalued and undersold. This is, in part, as a result of the hidden nature of the crime and the lack of reliable statistics. There are also heightened security risks for individuals should it become public knowledge that they carry K&R insurance, leading most companies not to disclose to their employees that the insurance has been purchased on their behalf. The upshot is that there is low “consumer” awareness of the insurance and, subsequently, little “consumer pull” for the product.

Another factor particular to mining companies is that many of their people working at offshore mine sites are contract employees who may not regard insurance coverage as a top priority.

Finally, human nature comes into play. People either believe that such an incident “won’t happen to me” or they fail to fully understand the nature of the risks they incur while visiting or working in potentially volatile environments. The proverbial wisdom that insurance is sold, not bought, has never seemed more relevant than with K&R insurance.

Interestingly, some of the steadiest customers for this insurance are news organizations and NGOs – two types of organizations that are very familiar with the day-to-day risks their people may face in unstable regions of the world.

A DELICATE BALANCE

The question naturally arises as to how to enhance the perception of the value of K&R insurance among obvious customers – such as mining and oil and gas companies – without raising the profile of the product to the point where it attracts the attention of potential kidnappers.

What does the future hold for K&R insurance? Given the risks previously noted, it will likely become more prevalent while remaining low profile. As companies become increasingly focused on their corporate responsibility to stakeholders – notably employees and contract workers – they will look more closely at this insurance coverage for their people working abroad.

Insurance brokers can play a key role by becoming better informed about kidnap risk and by advising corporate clients who operate in high-risk regions how best to insure against it.