There is a growing literature on the role of mafias and prison gangs in ordering criminal markets. They reduce violence by setting rules, enforcing contracts and resolving disputes in the criminal underworld and raise demand for illegal goods and services by protecting customers from criminal opportunism. This talk focuses on transactions across the legal / extra-legal boundary and the role of special risk insurers at Lloyd’s of London. I demonstrate how insurers created institutions to simultaneously inhibit and facilitate the trade in human hostages to make kidnap insurance an attractive and profitable product.

Crime creates demand for insurance but supplying insurance can inadvertently promote crime. How do insurers reduce uncertainty, pay-outs, and their exposure to extreme and correlated losses from crime? We find that insurers manage and mitigate losses by engaging with insureds, governments, extra-legal organisations, and third parties to create polycentric governance systems. These structures are highly dynamic: criminals and insurers constantly innovate to protect their profits. The lecture will analyse such governance ecosystems drawing on examples from kidnap and hijack for ransom, art theft and ransomware.