Premiums for kidnap and ransom insurance are skyrocketing, with contractors working in Iraq becoming major targets. But the government is refusing to step in and companies are reluctant to discuss the danger they are sending their employees into. James Sullivan reports

Kidnap and ransom (K&R) insurance, once a very specialised and little-known area underwritten by a relatively small group of insurers, has in recent weeks come to the attention of the international business arena as never before. As a result of the continuing turbulence in Iraq, employees of international companies that have won contracts to participate in the ongoing reconstruction and renewal (R&R) project have found themselves major kidnap targets. The figures are staggering. In one week last month there were 40 kidnappings alone to add to the ongoing uncertainty over bombings and drive-by shootings. For companies seeking to claim the spoils of Iraq's regeneration, the problem is a severe one. And as the number of kidnappings rise, companies are finding K&R insurance premiums rocketing and cover being restricted. According to insurance law firm Bond Pearce, kidnap and ransom premiums have more than doubled in the space of a month, with such cover now constituting approximately half of the cost of doing business in Iraq."The problem is that the US government wants companies to send employees out there to encourage R&R, but the cost of doing so and finding a safe working environment is proving a real struggle," explains Martin Lent, a partner at Bond Pearce. "Kidnap and ransom insurance is either prohibitively expensive or it's simply not available, meaning that employers are faced with some pretty tough choices. Some are considering having employees resident outside Iraq and flying them in on a daily basis."Lent claims the situation is a similar one to the immediate aftermath of September 11, when the government had to step in and effectively become the insurer of last resort for the aviation market. He says that similar action is needed now: "If it wants companies to operate in Iraq, the government must make it more secure or come up with a short-term financial solution."

Government refusalYet despite such calls for the state to intervene and assist companies clearly facing problems of a magnitude hitherto undreamt of, the government is refusing to get involved at this stage. In any case, its whole approach to the issue is much more sanguine than the prophets of doom. A spokesman for the Department of Trade and Industry says that most companies would be able to recoup the costs of any hikes in K&R insurance. "Companies working for the US Programme Management Office can reclaim costs for insurance from the US government," the spokesman says. However, he can not confirm the exact details of the package.But not all are convinced that the problem is as severe as it has been made out to be, with those involved on the underwriting side of the issue feeling the media has thus far presented a distorted view of the situation."The sort of price rises being talked about for K&R insurance are figments of the public's imagination," says Halcyon Ellis, who underwrites the area on behalf of US insurer Chubb. She says that if there is a problem with cover for clients in Iraq, Chubb will look at the situation carefully but this doesn't necessarily equate to a twofold hike in premiums. Rather, she explains, the scope of the cover itself will be changed."The basic K&R cover pays out money for the ransom demand and also covers expenses incurred as a result of the kidnap," she says, adding that such expenses can be huge. Chubb uses a company called Ackerman Group to aid in kidnap situations, and it has consultants all round the world, which she suggests can add substantial amount to the end cost."That's the bread and butter cover, but the add-ons we are writing more carefully following what has happened - these include cover for accidental death and dismemberment. Right now with the situation in Iraq we're giving that cover very carefully."

Emergency repatriationShe says another area that Chubb is being extremely mean about is cover for emergency political repatriation as an add-on to the standard policy. Ellis is keen to point out, however, that K&R insurance is a much bigger picture than merely Iraq, despite all the attention it has been receiving of late."The market has been around a long time - we've being doing it since the 1970s," she says. "We're seeing an increase in its profile obviously because of Iraq but also because of recent public kidnappings in the UK, such as the 11-year-old boy on Teeside who was kidnapped in March." And it would appear that such incidents are only the tip of the iceberg. In the final analysis, although claims are made about skyrocketing premiums in Iraq and government malaise over the issue, the truth of the matter is that it is still very difficult to get to the bottom of this market.

Hidden dangerAs with political risks insurance, K&R cover is by its very nature a sensitive line of business to write. Companies are hesitant to declare to the world at large that they have had to take out the policies, while insurers themselves are loathe to break the bounds of client confidentiality. And who could blame them? After all, which company wants to declare to the world that it is deliberately sending its employees into a region or situation where it is convinced enough of the possibility of kidnap to take out cover?Perhaps we will never know the full involvement of insurers and brokers in this sector, and the true extent to which prices fluctuate. After all, even the underwriters themselves are prepared to admit that they haven't got a grasp of the overall market dynamic."It's always been a mysterious class of business," says Ellis. "We know our own book but we don't know what the other markets are seeing; it's very sensitive. Media reports tend to exaggerate, but no-one knows much about K&R. For example, in the US - only 10% of incidents make the press, while there's probably more going on in Iraq." It seems that until someone is prepared to break ranks, this is a sector that will remain one of the dark corners of the insurance world for some time to come.