Kidnap – Inside the Ransom Business

By Anja Shortland

Kidnap for ransom is an ever-present threat in many countries in Central and South America, Sub-Saharan Africa, the Middle East and the Asia / Pacific region. Yet, millions of people live, travel, and conduct business in these high-risk areas. Very few of them are kidnapped and almost all come back alive. How can this be? Every stage of the trade – ransom negotiation, payment, and hostage retrieval - is fraught with difficulty. How can families, firms, and NGOs engage in successful trades with (foreign) criminal enterprises?

My book, Kidnap – Inside the Ransom Business studies the surprising degree of order in the market for hostages. At its heart lies the question: how do you contract with counterparties that you do not know or trust and where the state cannot help you when your trade partner cheats? This applies to making a deal with a violent extra-legal group, that can choose to protect or kidnap your firm’s employees, a kidnapper who may or may not return the hostage after receiving the ransom, or a middleman who could disappear with your cash rather than faithfully delivering it to the kidnappers.

All these contracts require a shadow of the future to succeed – a system that encourages reputation-building, rewards honest traders and punishes rogues. For local-on-local kidnaps gossip and social sanctions often constrain kidnapper behaviour. Some countries have even developed elaborate social norms governing the treatment of hostages. Yet kidnaps of foreign nationals are one-off trades… or aren’t they?

I studied special risk insurers at Lloyd’s of London, where a group of around 20 underwriters dominate the global market for kidnap for ransom (K&R) insurance. By sharing information and developing a common protocol for insurance and norms and processes for crisis resolution, these insurers keep kidnapping rare, predictable, and cheap to resolve; with an amazing success rate of 97.5% of kidnap victims returning home alive.

Starting with clear rules on what is insurable (to limit adverse selection), security advice and management, and clever contract design to address moral hazard, the insured are unlikely to get into trouble. If they do, experienced consultants help the stakeholders to find a price that satisfies the kidnapper but does not leave them with a profit to brag about and cause a local boom in kidnapping. Nothing is left to chance in designing and implementing the contract for the final exchange: paying the money and retrieving the hostage without risking an ambush, a further kidnap, a shoot-out or a murder.

This complex, polycentric governance system has come into existence through trial and error, rather than by design. It continuously evolves as new risks emerge and criminals and states change their tactics. When trades fail and losses are realised, new solutions are proposed, trialled, evaluated, and the successful ones adopted.

When mistakes are made they do not persist. Everyone has skin in the game: the underwriter who chooses high-risk customers, the security manager whose chief engineer goes missing, and the negotiator who pays a huge ransom create direct losses for the insurer and face the professional consequences. Similarly, the knowledge exchange within the K&R insurance community ensures that honest and straight-forward criminal counterparties are (minimally) rewarded, while ineffectual mediators, duplicitous warlords, murderous kidnapper and thieving ransom envoys are punished in subsequent trades.

The book thus shows that insurers can play an important role in the governance of criminal markets. By helping legal entities conduct their (forced) transactions with the criminal underworld, and by creating a system for information- sharing, they stabilise crime and limit its personal costs and financial impact on the global economy.