Insurers see opportunity to sell protection against kidnap risk in southern Europe, predicting that recession and social unrest triggered by the euro crisis will drive more abductions.
There is no evidence yet of an increase in kidnapping in crisis-struck Greece, Italy and Spain, but insurers are betting on an upturn which they think will increase sales of kidnap insurance, which reimburses ransom payments.
Their reckoning is that as economic upheaval widens the gap between rich and poor it will encourage crime as well as fuel a resurgence political radicals willing to take hostages.
In Italy, where kidnappings by the Mafia and radical groups marked the 1970s, the abduction near Genoa of construction boss Andrea Calevo, freed last month by police, stirred fears of new attempts – not just by organized networks, but by the kind of small-time opportunists who stand accused in the Calevo case.
“Certainly the high net-worth individual must be more of a target now in the current economic climate. We are going to look to market our products to those sorts of individuals,» said Michael Sharp, an underwriter at Lloyd’s insurer Beazley in London.
“In any place where there are financial problems we are seeing more disruption.”
Greece, Italy and Spain have been suffering years of economic stagnation and rising unemployment that have led to protest in the streets and growing support for radical politics.
“It would be fair to say there is increased demand in southern Europe,» said Will Miller of Special Contingency Risks, a unit of insurance broker Willis which specializes in kidnap cover.
“Looking at the ingredients that make up a country with a high risk of kidnapping, you’re beginning to see a distillation of those factors there.”
Greece, where unemployment has hit a record 27 percent, is the country most at risk of an increase in kidnapping, said analyst Jamie Scudder of risk consultants Maplecroft.
“Greece, given its financial problems, proximity to eastern Europe and porous borders, may become susceptible to future kidnappings,» Scudder said, referring to the strength of organized crime networks in Greece’s poor Balkan neighbors.
“Other countries along the Mediterranean, including Italy, may see an elevated risk as they struggle to deal with the effects of the financial downturn,» she added, saying organized crime «infiltrates almost all sectors» of Italy’s economy.
While not evidence in itself of a trend, Greece’s biggest ransom was paid in 2009, after the debt crisis struck, when shipping tycoon Pericles Panagopoulos was freed after his family made a payment police put at 30 million euros ($40 million).
Kidnap for ransom is an almost daily event in Italy. There were 351 in 2010 and 356 the following year, the latest for which national statistics are available.
Gianni Ciotti, secretary of Italy’s SILP CGIL police officers trade union, said his members were becoming more concerned about kidnapping, estimating that there were between 60 and 70 abductions in Rome alone last year:
“It is worrying given the fact that this is a particularly horrible crime,» he told Reuters.
Kidnapping is a old as history but modern insurance against it is commonly dated back to the shock created among rich Americans by the abduction in 1932 of the infant son of aviator Charles Lindbergh, a case that generated massive interest.
Kidnap insurance, which generally covers the cost of hiring negotiators as well as ransom payments, became popular with companies in the 1970s and 80s when radical groups, notably in Italy and Latin America, took executives hostage to raise funds.
Kidnap insurers now take in between $250 and $300 million in annual premiums, a tiny part of the overall insurance market but a figure that has grown by about 20 percent a year since 2006, according to estimates from insurers and brokers.
The biggest buyers of kidnap insurance are multinational companies, often in mining and oil, which have highly paid foreign employees working in riskier places in Africa, Asia, the Middle East and Latin America.
Protection in southern Europe accounts for about a fifth of the global premiums paid in the market, and some expect this proportion to grow as the euro crisis takes its toll, said Peter Dobbs, head of asset protection at Bermuda-based Catlin.
“People are talking about it,» he said. «There’s no doubt that economic hardship and political instability are a precursor to kidnap.”
However, the price of kidnap insurance has been flat for several years despite growing demand, held back by competition as more providers enter the market.
Up to four people on a two-week trip to a kidnap hotspot seeking cover worth up to $5 million will currently pay about $2,000, according to SCR’s Miller. A multinational with a large number of employees working in high-risk regions might have to pay an annual premium of over $1 million.
New entrants to the kidnap insurance market include specialist underwriters seeking to replace business lost due to a sharp fall in hostage-taking by Somali pirates, a decline that reflects increased use of armed guards on ships.
“There are so many companies that looked at the initial opportunities in maritime who are now thinking that they need to look elsewhere,» said Andrew Bathurst, an independent kidnap insurance broker.