If America were full of Scandinavians (the world’s most travelled people according to research firm Timetric), US travel insurance companies might well double or treble the value of the trip coverage they sell now. A fanciful illusion perhaps, but one that is illustrative of the challenges facing travel insurers throughout the nation, finds Milan Korcok
Why Scandinavians? Because though Finns, Norwegians and Swedes take as many trips per person as Americans over the course of a year (between six and seven), the majority of those trips are to foreign countries – usually sunnier and warmer; while only one out of five Americans can be expected to go beyond their borders, and only one-third even own passports, according to the US State Department
. Compare that to Canadians, over 60 per cent of whom own current passports and need them when travelling to the US, the foreign country they visit most.
Getting Americans to travel abroad may be a tough chore, but for travel insurers, that’s where the bulk of the business is. According to Guy Harvey, founder and CEO of Squaremouth
, one of the leading travel insurance comparison sites in the US, of American residents buying policies on his site this year, ‘more than 89 per cent are buying them for international trips’.
According to a survey by the US Travel Insurance Association
(UStiA), Americans spent nearly US$2.8 billion on all types of travel insurance in 2016 – a 19 per cent increase from 2014, but still only a modest figure when compared to the CA$865 million expected to be sold in 2018 by Canadian insurers to a population just over one-tenth that of 327 million Americans.
The Conference Board of Canada
notes that the premium value of single and multi-trip policies sold in Canada peaked at CA$926 million in 2014, and after a brief dip due to a sluggish economy, sunk to $797 million in 2016. But the trajectory has solidly rebounded and now it’s only a brief waiting game to see when Canadian travel insurance sales totals hit the magic one billion mark.
In the UK, which has a population of about 66 million, gross written premium of travel insurance in 2016 was approximately £570 million, down from the previous year, but according to Orbis Research
, expected to rebound to over £700 million by 2021. In respect to the UK, it should be noted that despite the drop off in travel insurance sales, Britons continue to increase their travel abroad, particularly to Europe, but as some research indicates, many UK travellers, particularly younger ones, are relying more on their European Health Insurance Cards (EHICs) for coverage, eschewing rising private travel insurance premiums.
In most of the industrialised world, the need for private insurance for foreign travel is a no-brainer. Even in Canada, the great majority of adult travellers buy private travel insurance, almost reflexively. They’ve heard enough horror stories from friends and neighbours, and in the media, about being hit with US$100,000 hospital bills while vacationing in the US – to which they made more than 23 million trips in the first eight months of 2017 – up 5.3 per cent over the same period last year.
But the same reflex action doesn’t seem to exist with Canada’s neighbours to the south. According to the UStiA, in 2016, approximately 42.6 million people travelled under cover of approximately 32.3 million plans provided by UStiA members. But the great majority of those plans were heavily weighted to trip cancellation/interruption and baggage loss benefits and less to the welfare of their lives and bodies: 87 per cent of travel insurance products focusing on trip cancellation/interruption benefits, only 7.8 per cent on medical and medical evacuation.
For example, a typical trip cancellation/baggage loss plan for a 45-year-old male, spending US$5,000 for a one-week trip to France, would cost $241 and would cover him for $15,000 accident/medical benefits and $150,000 medical evacuation. Bump that up to $50,000 medical and $1 million medical evacuation and the premium rises to $441.
On the other hand, a medical plan (designed also to cover longer term travellers like students and part-time expats) might cost the same 45-year-old traveller heading for one week to France $25 for $1 million medical expense with a $500 deductible – add just a couple of dollars more for $2 million medical and evac benefits. Add trip cancellation benefits and the premium for the week jumps to $325. But if the traveller is 70 or older, benefits will normally be capped at $50,000, and perhaps at $10,000 if the traveller is older than 80.
That’s quite the reverse for travellers in other countries who, though they appreciate protection against the losses of a cancelled reservation or a wayward bag full of non-essential holiday clothing or sun tan oil, are more interested in protecting themselves against the cost of medical expenses that can ruin a family’s finances overnight.
In Canada, the UK, most of Europe and even parts of industrialised Asia, travel insurance is designed to be superimposed over a universal healthcare system that has certain ground rules most citizens understand: such as if you’re a Canadian leaving Canada, or a European leaving Europe – you’re on your own. It’s private insurance or nothing.
" In Canada, the UK, most of Europe and even parts of industrialised Asia, travel insurance is designed to be superimposed over a universal healthcare system that has certain ground rules most citizens understand "
But in the US, which has no universal health insurance system, coverages are cobbled together by an amalgam of employer-sponsored private insurance of all shapes and sizes; government- administered programmes such as Medicare and their plentiful supplements; and the hybrid varieties now being phased out of what was once known as the Affordable Care Act. It’s baffling that a great many Americans don’t know what their plans cover while at home, let alone while on vacation in France, Tahiti or Tokyo.
For the large numbers of uninsured (between 20 and 30 million) the calculation of what is or isn’t covered is easy: no cover, period. For those on basic Medicare (disabled and people aged 65 and over) there is no out-of-country coverage unless they are stricken by a medical emergency in a location where the closest hospital is either in Canada or Mexico. If, however, they have a Medicare supplement plan that specifically provides foreign travel benefits (usually the higher priced, premium plans) they may be covered abroad, but not for medical evacuation benefits, and they will be expected to pay their providers directly and seek reimbursement back home: tough stuff if the bills run up into the high thousands, beyond the reach of their credit card limits. Then there are the employer-sponsored or self-paid private insurance plans that offer a range of varying benefits that need to be carefully parsed to determine what is covered while travelling abroad.
For prospective buyers of insurance for foreign travel, there is the need to blend the benefits and exclusions of products they are buying, to what they already have in their domestic health insurance. For example, if their family health insurance plan has lifetime limits on certain medical benefits, they need to be aware of the conditions and limits in their travel insurance product – which, as a coverage of last resort, may very likely end up draining some of their primary, domestic insurance through subrogation. No small issue if the primary insurer commits only to a modest limit on lifetime payouts. (See The right to reimbursement, ITIJ 192, January 2017).
The need for consumer education
Consequently, there is a huge challenge (and possible opportunity) for insurers to educate millions of prospective travellers of the risks they face while travelling abroad without coverage, and what to look for if they decide to expand their ‘trip of a lifetime’ beyond Disney World.
It’s a quandary ITIJ put to Megan Cruz, Executive Director of the UStiA. “Americans seem to be unaware of the limitations of their healthcare coverage when travelling abroad,” she said. “Most people either don’t have the coverage when they leave the US or have severely limited coverage when travelling abroad.”
She added: “Even if they do have coverage, much of it is reimbursement and requires them to have sufficient funds or credit to bear the full cost of their treatment or evacuation up front, which can be challenging or impossible for many.”
Americans as homebodies
Why Americans are such sparse buyers of travel insurance compared to other peoples is a cultural and economic phenomenon. After all, if they want to travel to another country, other than Canada or Mexico, they’ve got a long way to go and oceans to cross. It’s expensive. It even takes time and perhaps a lot of money to get to an international gateway. Then there’s the day lost on arrival (if heading east), and the even longer trip back home (if travelling westward).
Unlike a Swiss, who can drive to any one of five different countries by lunchtime, Americans are hours and many dollars away from foreign soil. They also have a lot of options to avoid those long and costly trips over oceans and, by extension, to avoid having to buy travel insurance.
Squaremouth founder Harvey says domestic travellers ‘can get everything they want in a trip without leaving the country’: “In England, for example, you have to go abroad to find a different climate … In America, whether you want tropical oceans, deserts, skiing, cities or geography, you can do that within America … so fewer people feel the need to go abroad,” he said. “Europeans know their health insurance won’t cover them abroad, so they turn to medical travel insurance. However, when US residents travel state to state, their health insurance can still cover them nationwide.”
This is true, as most private domestic health coverage policies do provide out-of-area coverage if the traveller can find an in-network provider. Or they can pay a modest copay if the provider is not in the one of the insurer’s preferred national networks. Not a huge impediment if the traveller is faced with a one-time medical emergency.
And then there’s the guilt
Another reason for the American hesitancy about travelling abroad, besides the fear of interpreting another language or digesting unfamiliar food, is the affliction of workaholism – a mortal fear that employees, mostly young, will be perceived as NOT being obsessed with their jobs. A widely circulated survey by career search firm Glassdoor
reports that the average US employee who receives paid vacation (not all do) only takes 54 per cent of allowed vacation days, and the average worker who receives two weeks of vacation annually leaves five days on the table. In another report released by the US Travel Association, these workers gave up 658 million unused vacation days last year – a gift to their employers.
" The average US employee who receives paid vacation (not all do) only takes 54 per cent of allowed vacation days "
Why? The surveys cited fear of getting behind on their work; a belief no one at their company can do their work while they are away; the need to show complete dedication to their company; the feeling they must never be disconnected; and the fear of not meeting goals.
Believe it or not, under the Fair Labor Standards Act, the US does not require employers to provide any paid time off – one of the very few developed countries (along with Japan) not requiring employers to provide paid time off. Compare that with the European Union mandate that employers give their workers four weeks’ vacation per year, plus varying time off for paid holidays.
Put another way, if America were full of Austrians or Portuguese, who rank number one in paid time off, vacation times would double. The point for freed up Americans: what to do with all that free time – free of guilt? The point for travel insurers is obvious. ⬛