The hard sell

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First published in ITIJ 84, January 2008

Milan Korcok asks why medical cover is still a tough sell for American travel insurers

Though Americans spend $1.3 billion annually on travel insurance, most remain woefully ignorant of the need for adequate medical emergency cover – a need the nation’s travel insurers are finding frustratingly difficult to sell. Thanks to a ragged patchwork of domestic health insurance plans that promise more than they deliver, and the blasé idea that medical costs abroad can’t possibly be as ruinous as they are at home, American travellers are more pre-occupied with lost bags, missed connections and cancelled trips than they are with the possibility of being hit by a ruptured appendix in New Guinea or Budapest.

Not that concerns about trip cancellation and missed connections are frivolous, but compared to demands for a million baht (about $30,000 US) from a hospital in Thailand, or a $50,000 up-front fee by an air ambulance repatriating a gravely ill Texan from Italy, the loss of a bag full of Venetian pottery made in China doesn’t seem so onerous.

One of the clearest examples of the different cultural approach to travel insurance is the way cruise lines in Europe and America market supplement medical coverage. In Europe, tour operators or cruise lines booking a European passenger virtually require substantial medical coverage to be in place; substantial meaning at least a million dollars or pounds or euros with requisite air repatriation arrangements included. And the lines may very well want to see proof of that insurance to see that it measures up, before booking is completed. As for the passengers, they think of this as only routine. It’s part of their responsibility.

An American passenger booking a cruise out of Miami, Los Angeles or Vancouver faces no such requirement and is likely to be offered nothing more than an off-the-shelf, $10,000 medical benefit that includes the option of being dropped off at a hospital in the nearest port of call should an emergency arise.

Medical coverage unpopular

According to recent data from the US Travel Insurance Association (UStiA), 67 million Americans (just over one fifth the population) spent more than $1.3 billion on a variety of travel-related insurance and emergency assistance services from UStiA companies in 2006, 20 per cent more than they did in 2004. Of these, one third, or 23 million Americans, purchased per-trip policies, representing a 20 per cent increase. (The data does not differentiate between domestic and international trips.) This is up considerably since the terrorist attacks of 2001 and gives industry leaders encouragement that they are headed in the right direction, but embedded in those figures is the cold, hard fact that specific travel medical and evacuation policies accounted for only 4 per cent of per-trip package policies sold. Certainly, many of the trip cancellation plans also carried some medical emergency and assistance services, but their $10,000 or $25,000 limits are no match for the $1 million-plus policies that provide virtually unlimited medical cover, repatriation, medical underwriting and direct provider payment benefits bought routinely by Canadian and European purchasers.

"specific travel medical and evacuation policies accounted for only 4 per cent of per-trip package policies sold"

It’s not that American travel insurance companies such as AIG/Travel Guard, Access America, HTH WorldWide, TravelSafe, and others don’t have high limit medical evacuation and repatriation policies on their shelves. They do. But few Americans seem to understand that they are available, and given the patch-quilt nature of their domestic, employer-sponsored health insurance, that they need them.

Information gap

Brad Finkle, president of UStiA, admits that Americans are more hesitant and less well informed about buying travel medical insurance than are Canadians or Europeans. Their ‘prime motivator’, he says, has ‘rightly or wrongly’ been to protect against trip cancellation, and from a practical standpoint, about three quarters of claims filed are cancellation claims. Historically, says Finkle, most Americans have assumed that some of their medical exposure, other than possibly evacuation, was covered by their personal insurance. But over the years that insurance has become more restrictive. “In Europe,” he says, “you see more socialised medicine, more defined limits, and even less [out-of-country] coverage. I think the need [for travel medical insurance] was seen earlier there.”

In effect, Europeans and Canadians clearly know that once they are out of their country (or EU jurisdiction), they are on their own. Americans, on the other hand, carry the illusion that their domestic insurance travels with them. Also, in Europe and Canada, travel insurance is marketed largely on the strength of its medical benefits. In the US, medical benefits are secondary to trip cancellation/interruption and baggage loss.

luggageOut of area benefits

About 85 per cent of Americans have some form of health insurance, most of it private. The majority of plans offer preferred provider benefits in their designated areas but allow out-of-area coverage when the insurer is notified. These out-of-area benefits are generally designed for use within the country and do not cover direct payments to foreign providers. This leaves the beneficiary to pay up front and try to recover from their insurer later. Neither do the benefits cover air repatriation although they may cover evacuation to ‘the nearest appropriate hospital’. But don’t count on it. In addition, there are indemnity plans which pay set fee amounts per admission and procedure, but few pay for flying sick members back home or make direct payments to foreign hospitals or doctors.

The federal government Medicare programme, which insures more than 40 million elderly and disabled, provides no international benefits. Most Medicare enrollees buy supplemental private insurance plans, some of which offer out- of-country benefits, but not direct payments or repatriation services.

"Americans are more hesitant about buying travel medical insurance than are Canadians or Europeans"

This lack of repatriation coverage in domestic health insurance plans has led to a booming market in dedicated air ambulance repatriation plans – most of which are bought by individuals on an annual basis – but that’s another story.

Cross head

Dan McGinnity, vice-president of AIG Travel Guard, also admits that most Americans have a very skewed impression of what their domestic health insurance covers. “They are not aware of the limitations of their insurance. Their HMOs and PPOs are not designed for (international) coverage. In the US, the medical transportation benefit is really designed for ground ambulance service, a few hundred dollars, not a medically-equipped air ambulance with medical escort that’s going to take you from a Caribbean island to a hospital in Florida.”

Looking at why this industry hasn’t done a better job exposing those limitations and making the case to most Americans that their domestic insurance just won’t cut it, McGinnity comments: “I think we’ve made some inroads. I think we could do a better job.” However, he notes that there has been a significant increase in awareness about the value of travel insurance in the past six years. He emphasises that travel insurance in the US is a relatively new industry dating back only to the early 1980s and the de-regulation of the airline industry.

McGinnity says that until the mid-1990s, Americans had a ‘hands off’ relationship with their health insurance: “For the most part they had indemnity plans provided by their employers and they never questioned the cost. The thought was, ‘I have this benefit and if I ever get hurt and go to hospital my health insurance pays for it.’ That’s changing now.”

Finkle and McGinnity also agree that the American consumer’s misconceptions about the value of travel insurance are partly attributable to misreporting by an ‘uninformed’ American media that perpetuates the myth that travel insurance isn’t worth buying because it duplicates coverage many people already have, such as in their homeowners insurance.

“It certainly doesn’t help when you have a poorly constructed article in a major publication like ///italic Consumer Reports/// claiming that travel insurance is just a waste of money,” says Finkle. “It kind of sets you back.” Finkle’s reference is to a report in May, which was widely replayed by the mainstream media. Ironically, the article noted that medical emergency and evacuation cover was the one element of travel insurance worth buying.

"Americans carry the illusion that their domestic insurance travels with them"

Educating the media and the public about the value of travel medical insurance clearly is a top priority, for major insurers and especially for the UStiA. “It’s a long, arduous journey,” says McGinnity, “and I think we’ve made some inroads, but we’ve still got a long way to go. We don’t have a lot of major players in the market that are pumping a lot of investment into marketing campaigns that are educating consumers. But we’re making some strides.”

Still, the public acceptance of travel insurance, though not nearly as high as in the Canadian or European markets, is steadily increasing. “Prior to 9/11 it was estimated that less than 10 per cent of leisure travellers purchased any type of travel insurance. Today, close to 30 per cent purchase insurance from their travel agent, travel supplier or directly from insurance providers,” says McGinnity.

Finkle adds that the acceptance of travel insurance is not nearly where it is in Europe, but is improving: “Compared to where we were five years ago in the US, [we are seeing] huge increases. What we face is … getting people to learn the hard way, that the message we’re sending out is the right message. And that’s a cultural thing, an educational thing, a historical thing. There’s a lot there that we have to overcome.”