Kidnapping ransom markets are really tough: it's hard to convey the demand, hard to arrange the payoff, hard to get the kidnapping victim back in one piece — but Lloyds of London has largely solved this problem by monopolizing the market for kidnapping insurance, then setting standards for the amounts of ransom to be paid and the conditions for payment. Kidnappers know that if they kill their prey, Lloyds will never pay them again.
It's documented in a new paper in Governance called "Governing kidnap for ransom: Lloyd's as a 'private regime'."
Insurers resolve this through an ingenious market structure. All kidnapping insurance is either written or reinsured at Lloyd's of London. Within the Lloyd's market, there are about 20 firms (or "syndicates") competing for business. They all conduct resolutions according to clear rules. The Lloyd's Corp. can exclude any syndicate that deviates from the established protocol and imposes costs on others. Outsiders do not have the necessary information to price kidnapping insurance correctly: Victims are very tight-lipped about their experiences to avoid attracting further criminal attention.
The private governance regime for resolving criminal kidnappings generally delivers low and stable ransoms and predictable numbers of kidnappings. Most kidnappings can be resolved for thousands or tens of thousands of dollars. This makes profitable kidnapping insurance possible. When the protocol fails, insurers sustain losses and must innovate to regain control.
Governing kidnap for ransom: Lloyd's as a "private regime"
Kidnapping for ransom works like a market. How it is organized is surprising.
[Anja Shortland/Washington Post]
(via roll_6_32, karl sinfield, CC-BY-SA)