Is KR&E Insurance for Hedge Funds Really Needed?
KR&E is an abbreviation for Kidnap, Ransom, and Extortion insurance.
It is a must-have for any firm that has company executives traveling anywhere in the world, and not just for hot spots as defined by the State Department.
In fact, KR&E is an inexpensive and critical coverage part even when hedge fund managers don’t travel overseas!
When I’ve discussed the need for KR&E Insurance for Hedge Funds with clients I often get that look from a decision-maker like – “You’re just trying to sell me something here, aren’t you? That would never happen to me. Right?”
My answer is that you just don’t know, but it may happen to you. There are about 30,000 kidnappings every year globally according to Chubb which writes a lot of KR&E insurance.
Targets for kidnapping are of course wealthy individuals, and hedge fund managers and their teams usually fit that description.
It’s often not a matter of being able to afford the ransom demand, it’s really an issue of what do you do when or if this crisis happens? And this is the key reason why KR&E insurance exists.
Most insurers of KR&E insurance for hedge funds policies provide not only for reimbursement of expenses associated with a kidnap, ransom, and extortion threat, but also provide crisis prevention and response.
In the event a fund executive or family member is kidnapped, domestically or globally there is an 800-hotline phone number you can call which is answered 24/7/365 by a specialist at a crisis management firm.
Chubb for example uses The Ackerman Group, as well-known security and investigative services company. Other insurers will use other consultants and for very large clients some insurers will permit the use of your own consultants if you have one on retainer.
Whoever answers that phone following a kidnapping will be responsible for coordinating a response including hostage recovery, negotiations, coordinating a response with law enforcement agencies, to delivering ransom funds.
This is the benefit of a KR&E policy. Yes, having money on hand to pay a ransom is great, but when faced with a crisis of this magnitude, having an expert to work with is invaluable.
Who is typically covered under a KR&E Hedge Fund policy?
Insureds will often include any firm leader or employee as well as their relatives, guests, or household residents; but check policy language to be sure it’s as broad as required by your firm.
What does the policy actually cover?
Most policies will cover a firm for the kidnap and ransom demands, and extortion payments to remediate a threat. These coverages are commonly written on a reimbursement basis. Meaning that you, the insured will pay for the demands and the insurer will reimburse you for those costs.
If a loan is required to cover the demand some insurers will pay the interest expense on that loan.
Expenses associated with an event such as the fees of negotiators, PR firms, reasonable medical and psychiatric expense following the release of an abducted person and others are indemnified.
Depending on the insurer several options can be included in a KR&E insurance for hedge funds policy. Including Product Recall, Active Shooter and Workplace Violence coverage, repatriation, cyber extortion, and political threat coverage.
In addition to the insurance attributes and crisis management response services most insurers also provide KR&E risk management services to help prevent events.
The bottom line is that KR&E Hedge Fund coverage is not expensive and the benefits of protection are invaluable.
In my experience, a $1,000,000 limit policy for a hedge fund will usually land in the premium range of $2,500 to $4,500 per year.
To determine the exact cost of protection, all we will need is a short-form application to be completed. Information needed will include the locations of all foreign employees as well as a list of anticipated travel to locations by country.
From there we can obtain a premium indication and discuss other options with you.
Have any other questions on insurance relative to your hedge fund? Just give me a call or drop me an email.