1. Cognizant published a white paper discussing Kidnap and Ransom Insurance at an Inflection Point.
2. The 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; each year, an estimated $1.5 billion is paid in ransom to kidnappers. While kidnap and ransom (K&R) insurance products are intended to reduce financial loss.
K&R MARKET
1. Kidnapping, unfortunately, is one of the fastest-growing organized criminal activities. In fact, kidnappings of foreign nationals increased nearly 100% between 2011 and 2012, the most recent publicly available data on the subject, and the average ransom demand in 2012 was approximately $2 million. Furthermore, over 80% of kidnapping cases go unreported because they are not made public.
2. Political Factor - Increasing political unrest in countries such as Iraq, Ukraine, Nigeria, Afghanistan and Venezuela is leading to an exponential increase in kidnapping incidents.
3. Economic Factor - Globalization is forcing corporations to expand their international footprint by deputing employees around the world – providing a lucrative financial option for kidnappers.
4. Social Factor - 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.
5. Technology Factor - 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.
CHALLENGES
1. Prospecting, due to limited insights for lead identification and targeted marketing.
2. 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%) 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.
3. 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.
(Source:Cognizant)
