New Delhi: When three-year-old Anant, son of Adobe Systems India Pvt. Ltd chief executive Naresh Gupta, was abducted on 13 November 2006 from just outside his home in Noida near New Delhi, it not only made headline news in India and abroad, but also spurred the development of what was till then a nascent insurance business.
The kidnap drama, which ended with the child’s rescue less than a week later, spurred companies, particularly multinationals that hire expats to work in India, to scramble for kidnap and ransom, or K&R, insurance cover.
“Kidnapping cases are on the rise worldwide, and given the number of incidents in India, the interest in K&R policies has increased,” said Bindi Thakkar, corporate marketing manager at private insurer ICICI Lombard General Insurance Co. Ltd.
Rising prosperity—and perceived inequity—together with inadequate law enforcement has led to a significant increase in kidnapping cases. In 2006, the latest period for which data is available, the number of reported abductions jumped 52% to 23,991, from 15,750 in 2005, ranking India sixth among 10 countries with the worst record for kidnappings, according to the National Crime Records Bureau.
Uttar Pradesh, where Noida is located, recorded the highest number of kidnappings at 3,318 in 2006, followed by Bihar and Andhra Pradesh at 2,619 and 2,030, respectively.
The rise in kidnapping incidents comes at a time when domestic and overseas companies are expanding in the hinterland, where the law enforcement machinery is often not able to provide adequate protection to their employees.
Companies caught in violent confrontations with local people or extremist groups are particularly vulnerable. In October last year, four employees of Posco India Pvt. Ltd, the local arm of the South Korean steel company, were held hostage by villagers who opposed building of the $12 billion steel plant in Orissa.
It is not clear whether Adobe’s Gupta was covered by a K&R policy. Given the sensitivity of the subject, a spokesperson for Adobe India said Gupta did not want to speak on the subject.
If Gupta and his family had been insured, the policy would have immediately kicked in. Because the prime objective of such insurance is to ensure that the kidnapped individual would not suffer physical harm, a typical policy would have had a crisis response team, often comprising former officials from investigating agencies, in place.
It would also cover any ransom paid to secure the victim’s freedom. In Gupta’s case, The Hindu on 19 November reported that that the police recovered the ransom sum of Rs50 lakh with the capture of the mastermind behind the kidnapping.
“When a kidnapping takes place, the parents and relatives of the victim get emotional and fail to negotiate with kidnappers. It is here that the role of response teams comes into play as they are trained to negotiate with kidnappers on the ransom amount. At the same time, they have been taught to keep the victim alive because the safety of the victim is paramount,” said S.K. Sethi, vice-president of Insurance Brokers Association of India.
Confidentiality is the key to K&R cover.
“The sums insured are normally large. Any breach of confidentiality would only increase the threat potential,” said an executive of an insurance company who did not wish to be identified.
Given the aura of secrecy surrounding such policies, Mint interviewed several insurers and law enforcement officials to piece together the elements and details of this niche insurance cover.
A K&R policy covers the insured against kidnap, bodily injury extortion, property damage extortion, product extortion, computer virus extortion, trade secret extortion, political detention and hijack.
“The total market may not be more than 25-30 policies in a year, as not many insurance companies are in this line of business,” said Niraj Kumar, general manager at state-run Oriental Insurance Co. Ltd.
There are no official estimates of the size of the market. Oriental Insurance sold six K&R policies last year, Kumar said.
Other insurers that provide such cover include ICICI Lombard, Bajaj Allianz General Insurance Co. Ltd, National Insurance Co. Ltd and Tata AIG General Insurance Co. Ltd.
The premium is normally high and varies according to risk perceptions. It depends on the extent to which the insured is exposed to risks that may include the net worth of an individual, nature of the job, previous threats and the number of people to be insured, among other factors.
The country risk is also a key; unlike India, Pakistan and Sri Lanka are identified as “high-risk” countries. Industry representatives say a ballpark estimate would work out to a premium of about 1% of the insurance cover, or about Rs1 lakh for a cover of Rs1 crore.
“Ransom insurance is not for everyone. It is a customized product and taken by corporates mostly for their key personnel,” said Santosh Balan, marketing head at Bajaj Allianz. The company sold around eight policies last year.
Not everyone agrees with Balan. “We are in talks with Tata AIG to launch a standard K&R policy,” said Rahul Aggarwal, chief executive officer of Optima Risk Management Service Pvt. Ltd, a New-Delhi-based insurance broker. “The standard policy will help us sell the product immediately without going back to the companies every time for determination of premium and insurance cover.”
Companies are also known to employ their own security agency to ensure their high net-worth individuals are protected. Hill and Associates Ltd, a Hong Kong-based company that provides security and risk management services to more than 250 corporate clients on a global basis, offers one such service.
“Kidnap and ransom negotiation is a very complicated business,” said John Henderson, country head of Hill and Associates. “Kidnapping on a corporate level is, however, not commonplace in India and not at the level of, say, the kidnapping of foreigners in Central and South America.”
He, however, declined to discuss procedures his company follows when an abduction is reported. “Being a confidential business, we can’t give the exact details of the process, but as a general rule, most multinational companies are insured against kidnap for ransom. We also advise our corporate clients on how not to get kidnapped and mitigate the risk of kidnapping,” Henderson said.
Similarly, a law enforcement official, who did not wish to be identified, said the best option is to improve law and order, and reduce the need for K&R cover. But it may be easier said than done, though it is emerging as a key electoral promise for many political parties.
The role of politics
Criminalization of politics contributes to kidnappings and ransom demands, said Shailendra Kumar, a Lok Sabha member of the Samajwadi Party from Chail in Uttar Pradesh. “Unless the Election Commission clamps down on political parties that field candidates with criminal backgrounds, state governments cannot hope to be effective against organized crime,” Kumar added.
“The nexus between politics and criminals has to be broken once and for all,” he said.
Law and order was a key campaign issue in last year’s Uttar Pradesh elections that brought Mayawati’s Bahujan Samaj Party to power. In Bihar, the state that in 2006 reported the second highest number of abductions, the Nitish Kumar-led alliance came to power on the twin planks of security and development.
Rajiv Pratap Rudy, a national spokesman for the Bharatiya Janata Party, part of the alliance that has been ruling Bihar since November 2005, said the problem is far too serious to be contained within a year or two.
However, he added that Bihar is more “a victim of perception”.
“It is true that law and order can only improve through comprehensive growth and infrastructure development. However, to say kidnapping for ransom is more of a problem in Bihar than elsewhere would be an exaggeration,” Rudy said.