Kidnap and ransom insurance at an inflection point

Kidnap and Ransom Insurance: At an Inflection PointBy gathering and distilling meaning from the metadata that exists in the digital world, insurance carriers can mitigate risk for companies that have globe-traveling executives.

2 KEEP CHALLENGING October 2015

Executive SummaryThe number of kidnappings in the world is increasing dramatically,

especially with more people traveling to less developed and

politically unstable economies. According to some estimates, two

people are kidnapped and held for ransom somewhere in the world

every hour;1 each year, an estimated $1.5 billion2 is paid in ransom

to kidnappers. While kidnap and ransom (K&R) insurance products

are intended to reduce financial loss, insurers are grappling with

numerous challenges, in the following areas:

• Prospecting, due to limited insights for lead identification and

targeted marketing.

• Underwriting, resulting from a dearth of historical data

across a sufficiently large sample set, which makes it difficult

for insurers to develop a statistically accurate approach to

establishing K&R insurance rates. As a result, K&R insurance

products are usually priced high. This is reflected in the low

claims ratio for K&R insurance (about 34.3%3) compared with

standard commercial lines, which is about 70%. While the K&R

claims ratio may never be in line with standard commercial

lines, the gap can be bridged by making rates more affordable

to buyers. The mobility of the insured across risk-prone areas

also poses a challenge for insurers to map patterns and

establish susceptibility to perils.

• Claims adjudication and loss control, due to a lack of data and

standard operating procedures. The risk/security consultants

that K&R insurers generally rely on for claims adjudication

often charge high fees to customize policies, track clients and

provide safety advice.

KIDNAP AND RANSOM INSURANCE: AT AN INFLECTION POINT 3

Conventional K&R marketing, underwriting and loss control

methods have proved ineffective for resolving these longstanding

challenges. We believe that a new approach — fueled by social,

mobile, analytics and cloud technologies (the SMAC Stack), as well

as the metadata generated by digital interactions — can enable the

K&R insurance industry to take advantage of the vast opportunities

to win in this uncontested space.

By harvesting the digital information that surrounds people,

organizations, processes and devices — what we call a Code Halo™

— insurers can convert market disadvantage into advantage. This

white paper highlights the state of the K&R market, illustrates how

carriers can apply Code Halo thinking to reduce kidnapping risk

and identifies ways to mitigate risk for K&R insurers that insure

companies across the globe.

■ Low Risk ■ Medium Risk ■ High Risk ■ Extreme Risk

Kidnapping Risk Rating

Understanding the K&R MarketKidnapping, unfortunately, is one of the fastest-growing organized criminal activities. In fact, kidnappings of foreign nationals increased nearly 100%5 between 2011 and 2012, the most recent publicly available data on the subject, and the average ransom demand in 2012 was approximately $2 million.6

Furthermore, over 80%7 of kidnapping cases go unreported because they are not made public. Figure 1 depicts the kidnapping threat in countries around the world.


Global Kidnapping Risk Map

Source: red24

Figure 1

Unfortunately, the underlying drivers for K&R insurance appear vibrant and suggest continued growth despite the best efforts of the international community. Figure 2 offers our analysis of the ransom industry from various perspectives.

Sizing the Changes in the K&R Insurance MarketK&R insurance is typically organized by reimbursement policies. Companies are legally able to pay ransom for a kidnapped employee, and insurers reimburse the company in its home country. Policies can be sold as an individual product or as coverage under other liability products. Studies have shown that the death outcome in kidnapping incidents is reduced by 88.89%13 when the victims are insured for kidnaps.

The total K&R insurance market was valued at about $4.37 billion14 in 2010, with an annual growth rate of roughly 12.25%.15 Market penetra-tion by traditional insurance carriers is about 11.6%.16 An extrapola-tion of this data indicates that the market opportunity size in 2015 is $7.79 billion, from which only $1.05 billion has been accounted for17 (see Figure 3), indicating an under-penetrated market that demands insurers’ attention.

Applying Code Halo Thinking to K&R Insurance Market under-penetration in the K&R space is the result of limited prospecting and marketing capabilities, limited underwriting capabili-ties and limited loss control measures. An inability to resolve these issues has fueled the perception that K&R insurance products are too expensive, deterring customers from purchasing them. Insurers can work toward resolving these issues — and possibly reducing the number of kidnapping incidents — by gathering and applying meaning


Kidnap and Ransom: An Analysis

K&R Insurance: A Market Analysis

Source: Cognizant analysis

Figure 2

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K&R insurance penetration forecast

K&R insurance market opportunity forecast

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Increasing political unrest in countries such as Iraq, Ukraine, Nigeria, Afghanistan and Venezuela is leading to an exponential increase in kidnapping incidents.

Case in point: ISIS, the Islamist militant group, earned about $20 million in 2014 from ransoms paid for hostages, including several French and Spanish journalists.8

Perspective Outlook Globalization is forcing

corporations to expand their international footprint by deputing employees around the world – providing a lucrative financial option for kidnappers.

Case in point: Somali pirates took over a Korean supertanker in the Indian Ocean in 2010. The pirates held the 24-crew ship for 217 days until they received a ransom of around $9 million.9

Professional, business and charity workers are the most frequent kidnapping targets (22% of total victims) as they adopt a more adventurous attitude while traveling on work.10

Case in point: A reverend from the U.S. was kidnapped from Hope Academy in Nigeria, where she had been working since 2005, for a ransom demand of around $300,000.11

Kidnappers are using new technologies to execute their plans. Social media stalking is adopted to examine activity patterns of potential victims to aid in planning their attack.

Case in point: An executive was kidnapped in Monterrey, Mexico, by a group that used Google search to assess his status based on the name placard displayed at the airport.12

Factors Advances

Source: Cognizant analysis Figure 3

from the metadata that surrounds people, processes, organizations and devices. Through “Code Halo thinking,” insurers can create virtual identities of company executives, their devices and the business activities in which they participate, which can unlock insights that lead to better decision-making.

Consider this typical scenario: Let’s say “John,” who works as a sales executive at a major multinational biochemical company, needs to make travel plans for an upcoming industry conference in Mexico City. He logs on to Expedia and makes his travel and accommoda-tion arrangements, and then schedules several meetings with his clients in that area using the Microsoft Outlook app installed on his smartphone. In the evening, he tweets about his upcoming plans to see if any of his friends will be in the area during the same timeframe.

Once John lands in the Mexico City airport, he checks-in his location on Twitter and Facebook, rents a car and drives to his hotel. The GPS installed on his smartphone provides directions to the route with the least traffic.

Following the conference, John plans to spend his weekend at a beach in Acapulco before returning home. Using TripAdvisor, he identifies the best place to stay and then uses Expedia to book a room at a beach resort.

In this situation, John engaged in numerous activities that involve interacting with his smartphone and multiple social media sites. The information generated by these digital interactions can be distilled to create John’s digital identity – the smartphone app shows his work schedule; the GPS provides his hotel and work location, along with his driving habits; Expedia, TripAdvisor and Twitter offer insight into his upcoming travel and accom-modation details. The intersection of all these insights represents a halo of information that an insurer can use to distill strategic insights into John’s risk profile, enabling targeted marketing campaigns, dynamic pricing, automated actions to protect against kidnapping, and reduced risks of paying ransom.


Quick Take

Insurers can create and cultivate a K&R Code Halo ecosystem and harness insights relevant to their business objectives. In order to assess whether they are ready for such a move, insurers can ask themselves the following questions:

• Does your organization want to make its products readily available to a wider set of customers? Does it want to increase its top line? Does it have an aggressive premium growth target?

> If yes, then it may want to focus on improved prospecting and targeted marketing for K&R insurance.

• Does your organization want to improve profit-ability? Is its current loss ratio higher than the industry average? Is there an initiative afoot to increase the affordability of K&R products?

> If yes, then your organization should increase its emphasis on improving risk assessment and using dynamic pricing.

• Does your organization want to improve its customer service levels? Is the customer service index affecting growth prospects?

> If yes, then it may want to offer real-time safe-ty alerts by continuously monitoring threat perceptions to customers insured against K&R.

The data required for these focus areas exists in the digital world. Using a comprehensive Code Halo ecosystem, insurers can convert these key bits and bytes into insights and foresights to harness K&R opportunities.

For more on Code Halos read our book, “Code Halos: How the Digital Lives of People, Things, and Orga nizations are Changing the Rules of Business,” by Malcolm Frank, Paul Roehrig and Ben Pring, published by John Wiley & Sons. April 2014, http://www.wiley.com/WileyCDA/WileyTitle/productCd- 1118862074.html.

Is Your Organization Ready for Code Halo Thinking?


Creating a K&R Code Halo EcosystemTo get started with such an initiative, insurers should understand two main aspects of the Code Halo ecosystem: the conceptual view and the implementation view.

Conceptual ViewThe conceptual view answers the “what” question, i.e., what does this ecosystem consist of, including details of the data sources that populate a Code Halo that will generate specific insights (see Figure 4).

Figure 4

Anatomy of a Code Halo Ecosystem

n Customer Halo

n Enterprise Halo

n Partner Halo

n Employee Halo

n Product Halo

Zonal Risk Analysis

6Agent Profiles

7

Employer Profiles

5 Emergency Assistance

4

Associate Profiles

3

Geographical Tracking

222Travel Predictions

1

Product Profiles

8

Insights that can be gleaned include the following:

Insight 1: Travel predictions. Insurers can identify individuals or employees who are seeking travel insurance, accommodations, car rentals and other similar information (e.g., tweeting about upcoming travel on Twitter) in specific risk-prone countries. Such individuals are high-quality prospects for K&R insurance, and their digital information can be used to develop targeted marketing campaigns based on their threat exposure analysis. The underlying information for these insights may be obtained from lead generators and aggregators (e.g., AgentInsider), quote comparators (e.g., InsureMe, QuoteWizard) and hotel booking websites (e.g., Booking.com).

Insight 2: Geographical tracking. Employers can gain insights into travelers’ location and calendar information by requesting their consent to track them through a GPS-enabled wearable device or mobile app. Employees would need to be ensured that the collected data is treated in a secure and confidential manner (see Figure 5 on page 10 for more on this topic). With the help of this data, insurers would be able to provide real-time safety warnings to the insured. The insured’s adherence to the safety recom-mendations (tracked through GPS or mobile apps) can then be used to assess relevant reductions in the K&R insurance policy premium and enable dynamic pricing. Data


sources include GPS technologies (e.g., geo-tagging, triangulation), customized mobile apps (e.g., TruMobi by Cognizant),18 and social media monitoring tools (e.g. Salesforce.com’s Radian6, Social Mention).

Insight 3: Associate profiles. Insurers can build travelers’ personal and profession-al profiles using social media monitoring tools for better prospecting, marketing and loss control. This will help insurers prepare customized marketing campaigns, track travelers’ whereabouts to provide safety alerts and improve claims adjudication, and detect unknown profile visits on the traveler’s social media pages to prevent possible kidnapping. Social media monitoring tools (e.g., Radian6, Attensity, Social Mention) can be used to gather the underlying information needed for these insights.

Insight 4: Emergency assistance. Insurers can capture the last visited location coordinates of the employee when the panic button was pressed in the mobile app or wearable tracking device and send this information to partner security firms in real-time for immediate assistance and rescue operations. This will assist insurers in preventing or quickly rescuing the insured. GPS technologies (e.g., geo-tagging, tri-angulation) and customized mobile apps (e.g., TruMobi by Cognizant) may be used to develop this capability.

Insight 5: Employer profiles. Insurers can build employers’ professional profiles using social media monitoring tools and tracking the contracts and deals won by employers in particularly risky areas of relevant countries using Web crawlers. This will enable the insurer to obtain quality prospects and initiate customized, just-in-time targeted marketing campaigns. The underlying information needed for these insights can be obtained from social media (e.g., Facebook, Twitter, LinkedIn), the company’s website, media/press reports (e.g., industry reports, magazines) and broadcast news channels.

Insight 6: Zonal risk analysis. Insurers can assign risk scores to each area/sub-area in a specific region based on the K&R incidents history and current news received (in real-time) from the insurer’s risk or security partners to generate optimal product pricing. These insights can be gleaned from information gathered from the United Nations Office on Drugs and Crime, K&R consultancy firms and security firms.

Insight 7: Agent profiles. Insurers can maintain social and professional profiles of K&R insurance agents to better map the agents according to customer issues, profiles and location. The insurance carrier’s internal employee information database can be used as the primary source for developing these insights.

Insight 8: Product profiles. Insurerers can map existing customer profiles with different product types to identify the best K&R product for prospective customers. The insurer’s internal policy information database and customer information database may be used for developing these sell insights.


Implementation ViewThe implementation view answers the “how” question (i.e., how the conceptual view can be implemented, and the various components involved). This includes a combination of software and hardware components needed to gather, prepare and assimilate the data, and harness the insights included in the conceptual view. Here’s a closer look at the steps involved:

• Gather data: Several components are required to gather data about the insured:

> Mobile app: A mobile app can help maintain contact with the traveler at all times, which can help insurers understand the risk level of the insured’s potential travel locations (via the calendar tracker) and actual locations (via the geo-tracker). Us-ing these insights, insurers can determine and communicate safe travel zones and routes, and share safety alerts.

> Wearable device: Wearable devices can also be used to maintain contact with the traveler, especially in areas with no/low network connectivity.

> Data collection application: A suite of applications can be developed to integrate all Code Halo sources (described in the conceptual view) and perform the necessary collation, cleansing and correlation of information gathered.

• Prepare and assimilate: Application layers are required to prepare and assimilate the gathered data to enable valuable insights. These include:

> A compliance rules engine: To ensure adherence to data privacy regulations, rel-evant local laws need to be incorporated in the form of business rules that will be applied to the gathered data.

> Data analysis and decision support algorithms: This includes applications to iden-tify patterns from Code Halo metadata and perform user threat exposure analysis and real-time location analysis.

• Harness: In order to benefit from the insights developed about customers and prospects, insurers need to make the following changes to their application landscape:

> Rating algorithm: The Code Halo ecosystem provides the insurer with better data to predict the probability of loss. Insurers can use this new information to better price the K&R insurance product. Doing so requires changes to the insurer’s ratings engine to enable optimized pricing that is dynamic in nature, based on the threat exposure analysis performed for the insured.

> Marketing and sales systems: The rich data presented by Code Halos must be analyzed by the insurer’s marketing and sales systems to determine and pursue new leads and enable better targeted marketing.

> Customer communication systems: Changes will need to be made to the insurer’s communication systems to enable integration with the mobile app and wearable de-vices to promote loss control through safety alerts.


Managing RiskInsurers must be aware of the regulatory landscape, privacy concerns and risks involved with tracking travelers’ physical location, monitoring the information on their smart-phones and accessing their social media profiles. Figure 5 describes these risks and their respective mitigation plans.

Regulatory Concerns, Risks & Mitigation Plans

Figure 5

Risks & Concerns Mitigation Plans

Data Privacy – Location Data

A few states in the U.S. have adopted laws for regulating the use of electronic tracking of employees. Others may follow suit.

Employers should only track employees under certain conditions: Q Use employer-owned devices. Q Obtain prior employee consent and give prior notice. Q Collect only relevant information and keep data secure.

Data Privacy – Internet Data

U.S. regulators are trying to establish stringent data privacy protection laws that would give Internet users more control over their online personal data.

Information from external Code Halos will pass through a business rules engine that checks for compliance with regulations such as Federal Trade Commission laws, Do Not Track Online Act 2013, the Electronic Communication Privacy Act, etc.

Ignorance/ Moral Hazards

Employees may forget or purpose-fully not carry the wearable device or cellphone.

Q Employees should be made aware of the safety benefits of carrying the wearable device or smartphone.

Q Employers should track location inactivity.

Data SecurityData collected from different Code Halo sources can be exposed to hackers and malware.

Systems should ensure multi-layered data security that follows a defense-in-depth security strategy to protect information from unauthorized access.

Moving ForwardThe need to do business in more innovative ways is rapidly becoming tablestakes for insurance providers, and K&R insurers must carefully identify and overcome the challenges to enable this transformational change. Implementing a Code Halo framework requires a comprehensive plan that includes the following steps:

• People: Identify leaders of the initiative, as well as a cross-functional team to implement the solution. Prepare internal teams to drive the required cultural and organizational change.

• Process: Analyze the carrier’s current K&R insurance market share, target segments and product offerings. Assess the impact of changes required to implement the solution using the existing business model. Determine existing people, process and technology touchpoints for tapping the K&R insurance market and design the future-state operating model. Prepare an implementation roadmap, control mechanism and execution strategy.

• Technology and partners: Establish strategic partnerships with hardware and software providers to implement the solution, or with a solution integrator that will bring all the components together.

• Communication: Devise a strategy to communicate with the sales channel (agents, brokers and direct channels), partners and internal product management, underwriting and actuarial teams.

Many opportunities exist in the K&R insurance market, and insurers can harness them if they have the vision and the wherewithal. By applying Code Halo thinking, K&R insurers can gain the first-mover advantage and realize their full potential.

Note: Code Halo™ is a trademark of Cognizant Technology Solutions.


Footnotes1 “Kidnap, Extortion, Detention, Hijack,” Stening Simpson, http://www.steningsimpson.com.au/risk-ransom/.

2 Global Black Market Information, Havoscope, 2012, http://www.havocscope.com/tag/kidnap-and-ransom/.

3 “Hiscox Ltd. Report and Accounts,” Hiscox Ltd., 2013, http://www.bma.bm/Insurance/Filings/2013%20GROUP%20PUBLIC%20FILINGS/Hiscox%20Ltd.pdf.

4 “Four Facts About Kidnap and Ransom,” PropertyCasualty360.com, February 2012, http://www.propertycasualty360.com/2012/02/27/4-facts-about-kidnap-and-ransom.

5 “Safe Travels,” CanadianUnderwriter.ca, May 2014, http://www.canadianunderwriter.ca/news/safe-travels/1003088229/?&er=NA.

6 Global Black Market Information, Havoscope, 2012, http://www.havocscope.com/tag/kidnap-and-ransom/.

7 “Top 10 Places to Get Kidnapped From,” Castle Rock Global Insurance, April 2008, http://www.castlerockagency.com/news/agency-articles/travelers-beware-the-top-10-places-to-be-kidnapped-from.html.

8 “Where Islamic State Gets its Money,” The Economist, January 2015, http://www.economist.com/blogs/economist-explains/2015/01/economist-explains?zid=312&ah=da4ed4425e74339883d473adf5773841.

9 “The 18 Largest Ransoms Ever Paid,” Business Insider, September 2012, http://www.businessinsider.com/the-biggest-ransoms-ever-2012-9.

10 “Kidnap & Ransom Today,” Catlin Group Ltd., October 2012, http://www.catlin.com/flipbook/kidnap-and-ransom-today/files/inc/342692550.pdf.

11 “American Missionary Kidnapped in Nigeria as Neighbor Countries Seethe,” Global Information Network, March 2015, http://www.frostillustrated.com/2015/american-missionary-kidnapped-nigeria-neighbor-countries-seethe/.

12 Bryan Acohido, “Kidnappers Use Google to Research, Select Victims,” USA Today, Feb. 15, 2011, http://content.usatoday.com/communities/technologylive/post/2011/02/kidnappers-use-google-to-select-victims/1.

13 “Mining Market Review,” Willis Ltd., Spring 2011, http://www.willis.com/documents/publications/industries/Mining_and_Metals/Mining_Market_Review_2011.pdf.

14 K&R insurance market in 2010 = Ransom market in 2010 * K&R claims ratio (i.e., 34.3%). From the Hiscox Annual Report, 2013.

15 “I’m a Client… Get Me Out of Here,” The Economist, June 27, 2013, http://www.economist.com/blogs/schumpeter/2013/06/kidnap-and-ransom-insurance.

16 “Insurance Indicators,” Organization for Economic Cooperation and Development, 2010, http://stats.oecd.org/Index.aspx?QueryId=25437.

17 K&R Insurance Market Opportunity Analysis, Cognizant, December 2014.

18 TruMobi is Cognizant’s enterprise mobility suite that manages and secures enterprise apps and data. For more information, please visit http://www.cognizant.com/trumobi.


About the AuthorsRamanujam Venkatesan is a Senior Consulting Manager with Cognizant Business Consulting’s Insurance Practice. He specializes in property and casualty insurance, with focused expertise in commercial insurance products. Ramanujam has worked with many insurance carriers across North America, Europe and Asia-Pacific. He has a postgraduate degree in management from the Indian Institute of Management Indore and has a bachelor’s degree in engineering from the University of Madras. Ramanujam also holds certifications from The Institutes (formerly the American Institute for Chartered Property and Casualty Underwriters). He can be reached at [email protected] | LinkedIn: https://www.linkedin.com/pub/ramanujam-ram-venkatesan/1/7b1/b27.

Arvind Choudhary is a Senior Consultant with Cognizant Business Consulting’s Insurance Practice. He has over eight years of business analysis and IT experience in the insurance and telecommunications industries. He specializes in property and casualty insurance and has worked with numerous insurance carriers across North America, the UK and Asia-Pacific. He has a postgraduate degree in management from the Indian Institute of Management Bangalore and a bachelor’s degree in engineering from the Jabalpur Engineering College. Arvind can be reached at [email protected] | LinkedIn: https://in.linkedin.com/pub/arvind-choudhary/8/451/a95.

Satyendra Kuntal is a Senior Consultant with Cognizant Business Consulting’s Insurance Practice. He has more than nine years of business consulting, product and program management experience in the insurance industry. Satyendra special-izes in P&C insurance, focusing on data and digital transformation initiatives. He is a post-graduate in management from the Management Development Institute Gurgaon and has a bachelor’s degree in engineering from the Indian School Mines (ISM-IIT) Dhanbad. He can be reached at [email protected] | Linkedin: www.linkedin.com/in/ReachSaty.

https://www.linkedin.com/pub/ramanujam-ram-venkatesan/1/7b1/b27

https://www.linkedin.com/pub/ramanujam-ram-venkatesan/1/7b1/b27

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Kidnap and ransom insurance at an inflection point

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