Here, there and everywhere
Lee Coppack looks at how different travel insurers define geographic zones with risk ratings
Lee Coppack looks at how different travel insurers define geographic zones with risk ratings, and asks if changing the zones from one insurer to the next does a disservice to the customer
Geographical rating zones for most multi-trip travel insurance policies have a kind of boilerplate quality, but in June this year the German headquarters of Europaische Reiseversicherung (ERV) decided to make a change. After a detailed claims analysis, it simplified its policy based on medical costs. Gone is the distinction for the US and Canada. ERV now has two zones: Europe and worldwide.
Florian Fehr, ERV’s country head of product management and travel underwriting, explains that most travel insurance policies are sold over the counter in Germany. “We need to make sure that the travel agent is able to advise the customer in a clear and comprehensible way. In the course of the project, we made a thorough analysis of average medical costs. The outcome was that it is almost impossible to come to a clear geographical split. In some regions, there are high-cost and low-cost countries. This is why we have decided to work with a well-established geographical split rather than individual groups.”
Despite changing political tensions, natural catastrophes and outbreaks of disease, the various geographical zones selected and determined by different travel and health insurers tend to change little – unlike specific marine and aviation war risk insurance, where underwriters can exclude new high-risk areas at short notice and charge additional premiums. “Travel insurers rarely change the zone definitions,” confirms a spokesman for the Association of British Insurers.
Indeed, insurers fear that frequent changes would risk confusing customers who are either buying through non-insurance intermediaries such as travel agents, or directly from an insurer’s website. In the UK, 90 per cent of travel insurance is now sold online, according to Stephen Howard, secretary of the UK’s Association of Travel Insurance Intermediaries.
As James Daley, managing director of Fairer Finance, told ITIJ: “If insurers take a differing view on which countries to include within their European policies, then it’s vital that they make it clear what’s covered and what isn’t at the time the customer takes out the policy. Customers can’t be expected to read thousands of words of small print in detail every time they take out a travel policy, so it’s up to insurers to highlight any obvious gaps in their cover.”
Senior Ombudsman for the UK’s Financial Ombudsman Service Sean Hamilton told ITIJ: “Inconsistency of travel insurance zones can, of course, lead to consumer confusion, particularly where there is a change from one year to the next. There can also be differences between insurance companies, which can add to the confusion. It is the responsibility of each insurer to make sure that any terms, be they singular, collective or generic, are clear and unambiguous for consumers.”
Despite the risk of confusion, insurers the world over continue to try and standardise policies in terms of geographic zone risks. However, not all are in favour. Kate Huet, managing director of UK-based broker International Travel and Healthcare, would in fact go one step further: “I believe that the industry should move to not banding countries together into regions at all and instead ask specifically for the client to advise where exactly they are travelling to. [This is] pertinent also for multi-destination trips, to ensure the correct ‘regions’ have been identified. In the back office, their systems can then allocate the choices back to banded territories if that is how they want to work – but to ask a consumer to notice that Spain is not detailed in Europe 1 and is detailed in Europe 2 is for some asking too much.” When it comes to confusing customers, Huet pointed out: “I personally dislike ‘Countries west of the Ural Mountains’ as a phrase – just how many consumers know where they are? That’s so confusing. As is Morocco being included in Europe by some insurers – I could go on … there are more.”
Hamilton also mentioned the difficulty in defining Europe as problematic for insurers: “There may be confusion with ‘Europe’ as the countries that form part of the European Economic Area (EEA) are not all member states of the European Union (EU). And indeed this is a fluid situation with new members due to join the EEA or become member states in the near future. With regular news and press coverage over the expansion of Europe, coupled with variations between the EEA and EU, ‘Europe’ as a territory covered in a policy could well lack clarity. Where something in a policy is ambiguous we are likely to interpret it in the most favourable way to the consumer.” Insurers, you have been warned!
Paramount criterion
The world according to travel insurers divides up in fairly consistent ways, but with some variations. The zones that travel insurers in the UK and Europe mainly fall back on are: home country; Europe, which may include the home country; worldwide excluding the US, Canada and the Caribbean; the US, Canada and the Caribbean; Australia and New Zealand; and Worldwide.
For European insurers, the most usual breakdown is currently these five or six zones, with some underwriters opting for just two or three; all of Europe may be treated as one area, and some insurers do not have a separate zone for Australia and New Zealand. Chartis Australia, for example, offers worldwide cover excluding all of the Americas and Antarctica, and worldwide cover. Otherwise, the main anomalies occur in Europe or Europe Zone 2, regarding which neighbouring countries are included or excluded. For example, for some insurers Europe may include all Mediterranean rim countries or exclude some such as Algeria, Israel, Jordan, Lebanon and Libya. Turkey is another country that insurers have in different geographic zones.
In the US, the picture varies a great deal. “Some insurers may rate destinations, but others do not. There are so many different types of policies available in the US that it is very difficult to generalise,” explained a spokesperson for the US Travel Insurance Association.
Luke Hilty, chief travel underwriter for ACE Overseas General, says the company’s approach to rating by geographical zones for travel insurance is no different from its approach to rating by any other attribute. “We try to pool policyholders in homogenous groups according to the underlying risk.” He explains the risk assessment process considers three broad tiers:
- Frequency or attritional risks that occur with regularity. Because of their stable nature, frequency losses can usually be analysed and used to fine-tune the risk rate for a specific segment.
- Large losses that have much lower frequency. For example, we seem to have a moderately sized tsunami, earthquake or hurricane every two to three years. These are difficult to account for within any segmentation, so a global risk charge is normally spread across all portfolios that may have exposure.
- Major or catastrophic risks that affect many geographical segments and even many lines of insurance. The September 11 terrorist attacks and Iceland’s 2010 volcano eruption are examples of events that impacted global portfolios for many insurers. This is where reinsurance plays a vital role.
Hilty said: “The trick is to understand as much as possible about your portfolio so that little is left to chance.”
The cost of healthcare at the destination is the paramount criterion for travel insurers in weighting their risks by territory, as ERV’s analysis indicates. The US is at the top of the list, which is why North America tends to have a special zone of its own, explains Hilty. A study for the Commonwealth Fund published in 2012 on the cost of healthcare in the US found ‘prices for selected health services and products to be higher in the US – far higher, in some cases – than in the other study countries’. These other countries were all developed, industrialised countries. By contrast, the reciprocal healthcare arrangements of European Union countries reduce insurers’ exposures.
Fehr of ERV added: “Medical costs are also influenced by neighbouring countries. To give an example: we have realised increased medical costs in Cuba. We register a case under the country where the event occurred, but the increase in medical cost was not based on increasing medical costs in Cuba, but by the fact that patients were moved to the US for further treatment, which has a dramatic effect on average claim cost.”
A few insurers provide a more extensive list of destinations by country, perhaps segmenting out Alaska and Hawaii from mainland US, and Canada and Mexico. The US-based company CSA Travel Protection, which has 17 zones, advises travellers who are going to multiple destinations to choose the one where they will be spending the most time.
For single-trip policies, some companies offer customers a complete list of countries and the cost of the trip may be asked. This gives the insurer a better idea of where the traveller is going and what they are likely to do, so it is possible to be more precise in the rating than for annual or multi-trip policies. “The biggest challenge with the annual policy is that we may not know where they are going, what they are going to be doing, how long they will stay or even how many trips they will take in the year,” says Hilty.
Kate Huet of International Travel and Healthcare was of the opinion that in general, people buying annual multi-trip policies have a good idea about where they are likely to be travelling to in the coming 12 months, and they could simply then advise which areas they would like to be covered for at inception or renewal of the policy. She added: “If the systems are capable of adding destinations, which they would have to be currently for the management of the policy, it won’t necessarily impact on the premium for the client to advise if they didn’t get the countries right at inception and their policy schedule will always detail the exact country they are visiting when they confirm their plans. This would also provide insurers the opportunity to ensure there have not been changes in health prior to travel and after issuance at the point the client updates their territory selection.”
Devil in the detail
Clearly, a much more detailed risk assessment applies when insurers are looking at cover for people who ‘deliberately put themselves at risk of death, injury, illness or disability’ because their work takes them away from the usual holiday or urban business destinations. However, Frances Nobes, global risk analyst at crisis assistance consultancy red24 said that the cost of healthcare can still be the most important issue when taking into account the local infrastructure – how accessible and good the country’s medical facilities are. Other criteria for geographic rating risks include politics, civil unrest, kidnap risk and crime. “We use a weighted rating,” she explains, “For example, a country might have a high political risk and instability but reasonable healthcare.”
Large countries can present quite different risk profiles, especially between urban and rural settings, says Nobes. There could be a significant crime or terrorism risk in a major population centre that is of little concern outside the cities, but in the countryside the roads are poor quality and healthcare is limited.
These issues are important for people in certain industries like energy, construction and news media, but most people do not want to go to a high-risk area on holiday, so sudden flare ups tend to take care of themselves, says Hilty. In any case, the law of large numbers applies. “If we get one or two people caught up,” says Fehr, “it is part of the portfolio.” Package holiday organisers would normally reschedule or reroute the trip or refund the customer’s money.
Using exclusions
Instead of responding to developing situations, retail travel policies will normally have a general war risk exclusion, which typically includes not just conflicts between two states, but also civil war and severe civil disturbance. In the US market, Hilty advises, most policies will include an exclusion for travelling against State Department advice, but it depends on the jurisdiction, and the guidance is often not categorical. A similar situation applies in the UK, says Stephen Howard, but the Association of Travel Insurance Intermediaries is looking to discuss with the Foreign and Commonwealth Office how these advisories can be made clearer.
Travel insurance companies in the US do have exclusions based on country; however, it differs depending on the company and country, said the spokesperson for the US Travel Insurance Association. “Some companies may not cover trip cancellation and interruption for countries where the US State Department has issued travel warnings. Other companies do not go by State Department warnings. Once again, the country coverage depends on the company.”
Pull together
Expecting cohesion from the global travel health insurance industry is obviously an unrealistic proposition, given the differences in distribution preferences and underwriting criteria. It is worth noting, though, that expecting consumers to trawl through small print in order to discern tiny differences in exclusions between, for example, two different UK insurers, is often viewed dimly by the ombudsman. In countries where customers buy their cover through their travel agent, the insurer has the opportunity to rate the risk exactly as the holiday is booked, which surely would increase accuracy and therefore lower premiums. For those customers buying online who fill out all the different fields, would it really be so hard to add another field asking the customer which country they are travelling to? Especially for single-trip cover, this seems like a sensible option that wouldn’t be too costly for the provider to implement.
As Kate Huet concluded, more exact ratings offer benefits for all parties: “It allows the insurer a better and more current view of their scheme’s risk profiles; it brings brokers closer to the clients with more frequency of contact; it ensures the client is aware of their requirements to notify not just changes in health but also to ensure that their insurance schedules have their countries to be visited specifically named.” Clients have to take some responsibility, she added, but as an industry, we have to educate them better.
Hamilton of the Financial Ombudsman Service concluded: “It is not for the ombudsman to ‘require’ standardisation across the travel insurance industry, but consistency among insurers is likely to be more of a benefit than a hindrance to consumers. And any steps that enable consumers to better understand the extent of cover under an insurance policy will help them to choose the policy and extent of cover that is right for their circumstances and needs.”