Travel insurance products across the globe have historically prioritised ease of sale – often resulting in policies and pricing that don’t fully account for key risk factors such as age, destination country or traveller state of health. For policies that cover overseas emergency medical expenses, the health of the insured is a key risk factor, but is very often ignored, since policies often have a clause excluding claims related to pre-existing medical conditions.
It can certainly be argued that this practice isn’t a good thing from the perspective of any of the stakeholders. Policyholders with pre-existing medical conditions are at best uncertain as to whether their medical claims will be paid, or if they will be left to fend for themselves. Intermediaries have to sell products that can lead to very unhappy clients if claims are not honoured. And finally, insurers face arguments at the point of claim, along with problems with regulators and potential PR disasters.
Legislation and regulation
Consumer protection legislation and regulation is rapidly developing worldwide, perhaps nowhere more so than in the European Union (EU) and UK. In the UK, it has long been mandatory to clearly explain the relevant exclusions in policies to consumers. The Insurance Distribution Directive (IDD) 2016 (EU legislation) requires insurers to identify customers’ demands and needs, and to ensure products offered are consistent with them. It is hard to see how offering someone with pre-existing heart disease (and planning to travel to the USA) an insurance product that excludes cardiac-related claims fulfils these obligations.
If the insurer has gone through a reasonable process to understand any additional risk potentially presented by an individual’s personal circumstances, then an underwriting decision can be defended
In some territories, notably the UK, blanket exclusions of medical claims related to pre-existing conditions have been seen as discriminatory for some time. This applies whether the wording excludes a category of conditions, for example HIV or mental health, or excludes claims relating to any (unspecified) pre-existing conditions. In Australia, a major review by the Victoria Equal Opportunity and Human Rights Commission in 2019 found that major insurers were systematically discriminating against people with pre-existing mental health conditions, resulting in widespread change of practice.
By contrast, it is still routine to sell travel insurance policies in most EU countries with little or no exploration of a customer’s needs, and with exclusions for pre-existing conditions. This is partly due to limited public awareness of the issues, to factors around distribution, and because regulation in this area has not yet been enforced. The European Insurance and Occupational Pensions Authority (EIOPA) carried out a thematic review of travel insurance in EU member states in 2019 – a key finding of which was that most policy sales did not comply with obligations under the IDD. This remains the status quo, and it is uncertain whether, or when, national regulatory authorities will pick up this baton.
It is generally accepted that insurers are not reasonably required to take on any and all risk presented to them. By extension, if the insurer has gone through a reasonable process to understand any additional risk potentially presented by an individual’s personal circumstances, then an underwriting decision can be defended. Clearly, ‘traditional’ medical underwriting – involving scrutiny of every application form by a specialist medical underwriter – is not realistic in the context of the volumes and cost of travel insurance policies sold. Fortunately, in an era where the application of technology and automation is commonplace, it is perfectly possible to insert a brief self-administered health questionnaire into the policy sales process for those with relevant conditions, and generate underwriting outcomes based on responses. The term ‘medical screening’ is unfortunate, because it implies screening people out. In fact, the usual outcome is acceptance of additional risk, potentially with variations to price, and/or deductibles or benefit limits.
Australia, Canada, Ireland, New Zealand and the UK have all widely adopted automated medical underwriting as a standard part of the policy administration process. The result is that consumers can now, with very few exceptions, find travel insurance cover to include claims related to their pre-existing medical conditions. There are fewer arguments at point of claim, and fewer reputational risks for insurers. Of course, the cost of insurance for those with high-risk conditions goes up, and the industry still faces the challenge of how to explain to customers why the price has risen and what the costs of medical treatment overseas and repatriation can look like.
The explosion of data available to insurers and their ability to interpret it, allied to direct-to-consumer products sold online, brings personalised pricing ever closer
In the US, the best-selling travel insurance products are cancellation-focused, with prices that are, to an extent, proportional to insurer exposure (holiday cost). In some countries, insurers go some way towards providing limited cover in the event of claims related to pre-existing conditions. For example, policies sold in India for overseas travel often have limited cover for life-threatening emergencies, and in many countries there is initial cover for ‘stabilisation’ of medical emergencies. While better than nothing, at the very least there can be arguments about what constitutes ‘life-threatening’ or ‘stabilisation’, and the low benefit limits of such cover are frequently inadequate.
The explosion of data available to insurers and their ability to interpret it, allied to direct-to-consumer products sold online, brings personalised pricing ever closer. This creates winners and losers, and there is beginning to be a debate about how fair this is (although there is very little complaint from those who are good risks and whose prices reflect the fact). Given the direction of regulation it seems unlikely that, for example in the UK, there will be a movement away from enabling customers to access products that meet their coverage needs. The question may well be about price, and whether and to what extent it is reasonable for the healthy to subsidise the sick.