The multibillion-dollar business of ransom

There is a multibillion-dollar industry predicated on fear, risk and hope: The business of kidnapping, ransom and extortion (KRE) is mainly publicized from the point of view of the hostage-takers or victims, but rarely do we get a glimpse into the companies responsible for rescuing, insuring and training people who find themselves in dangerous situations around the world.

Specialists for the Pilgrims Group—a company that provides security risk management and consulting—conducts its simulated kidnapping training course.
Source: Dina Gusovsky

The number of kidnappings has been increasing, up 30 percent in Africa from 2013 to 2014 and rising in the Middle East. Although about 60 percent to 70 percent of overseas kidnapping of U.S. citizens goes unreported, according to the Bureau of Consular Affairs at the U.S. State Department, last year alone more than two dozen Americans working for companies had been kidnapped in terrorism-related incidents.

Big business of kidnapping, ransom & extortion
Big business of kidnapping, ransom & extortion

The surge is due to the fact that many militant groups have emerged around the world and there is an increase in economic and political instability.

Statistics tell the story.

  • Of all the kidnappings that occurred in 2014, 84 percent were local nationals and 16 percent were foreigners.
  • 35 percent of kidnaps were conducted in Asia, followed by Africa at 30 percent, the Americas with 21 percent, Middle East with 12 percent and Europe/Russia with 2 percent.
  • Nigeria was the No. 1 country for kidnap incidents in 2014.

Source: Neil Young & Associates International (NYA International)

The first line of business usually starts with a hostage insurance broker, whom big companies hire to assess any potential risk to its employees.

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"That's how we get paid, to think of what could go wrong," hostage insurance broker Michal Gnatek told CNBC.

"We connect those organizations with the companies that can help finance that risk," he said.

To accomplish this, Gnatek works with all the major insurance companies—including Travelers, Hiscox, Chubb and AIG—that offer kidnap and ransom (K&R) insurance to clients. These policies typically cover the perils of kidnap, extortion, wrongful detention and hijacking. K&R policies are indemnity policies; they reimburse a loss incurred by the insured.

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The policies do not pay ransoms on behalf of the victims. Typically, the insured must first pay the ransom and then seek reimbursement under the policy. Losses usually include ransom monies, transit and delivery, accidental death or dismemberment, judgments and legal liability and additional costs for medical care, PR counsel, salary replacement, family counseling and rehabilitation.

Coverage includes reimbursement for any losses that a company or NGO has in the event of a kidnapping or extortion threat that involves demand for a ransom.

Costs vary wildly depending on the length of the policy, who is being insured, and the risks of the location.

Mouse over the map below to reveal the level of risk and types of threats that exist in the various countries.

CNBC spoke with Rob Schueler, vice president of portfolio management at Travelers Bond & Specialty Insurance, who said his clients range from international companies, U.S. organizations that are conglomerates, mining organizations that have assets and properties overseas, as well as oil and gas exploration businesses.

"For an organization that is exclusively U.S.-based that does very limited to no travel, it can be in the hundreds of dollars for a small limit policy, and it can run to the tens of thousands for the organizations that are global in scope," Schueler told CNBC.

"We find out clients are really interested in where the global hot spots are."

Travelers works exclusively with Olive Group, a leader in the crisis response and consulting business that is headquartered in the Middle East but operates on five continents.

The biggest expense for a company, and subsequently the insurer, are these kinds of services.

Crisis consultants charge about $3,000 to $3,500 per day, and experts told CNBC that with ransom demands—sometimes as low as $50,000 to $100,000—it is conceivable that clients, insurers and families would pay more for the crisis consultant than for the ransom itself.

Companies who are in the business of providing simulated kidnapping training—which includes being taken hostage and interrogated—are busier than ever as well.

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Mark Stansfield, deputy training manager at Pilgrims Group, a company that provides such training, told CNBC that business has increased "fivefold since 2010" and is now on a tear.

CNBC's Dina Gusovsky gets a lesson in surviving kidnapping and hostage taking
CNBC's Dina Gusovsky gets a lesson in surviving kidnapping and hostage taking

"It's just kicked off in the last year. It's gone crazy," he said.

The training courses are created based upon speaking with actual kidnap victims and includes exercises similar to what the British Army and U.S. Special Forces perform.

A two-day training course runs about $2,500 per person.

New policy impact

The Obama administration recently changed its policy regarding ransom payments, claiming it will no longer threaten or prosecute the families of loved ones who wish to pay ransom to terrorist organizations, though the U.S. Government itself will not engage in this practice.

Some experts are concerned that the new government policy could make hostage-taking more profitable and have the effect of triggering an increase in these types of crimes.

Travelers' Schueler told CNBC it's been a steady increase of business, but he attributes that more with a growth of international trade and commerce than with kidnapping threats.

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The first insurance policy dates back to the early 1930s in response to the Lindbergh kidnapping, while the overall industry, which includes consulting and hostage negotiation services, dates back to the mid-1970s.

How to find a qualified consultant

So what makes someone qualified to be a first responder in a kidnapping or hostage situation?

Mark Harris, director of crisis response services at Olive Group, told CNBC that consultants and responders are required to have international experience and have had to overcome crises themselves in the past "so they can use those skills to objectively advise our clients in resolving the situation."

Harris said his business has increased about 40 percent since its launch in 2013.

Hostage broker Gnatek points out that those numbers are just the tip of the iceberg for KRE businesses.

"The industry, as a whole, is much bigger than the insurance market sees, because much of this is being kept under the rug," he said.