Compulsory cover

Compulsory cover

ITIJ often publishes articles about travellers heading off without insurance, and the latest one has sparked off some debate about whether or not governments should make travel insurance compulsory. David Craik looks at both sides of the coin

First published in ITIJ 98, March 2009

ITIJ often publishes articles about travellers heading off without insurance, and the latest one has sparked off some debate about whether or not governments should make travel insurance compulsory. David Craik looks at both sides of the coin

When Dean Willis, a radio DJ from Derby, UK started working in Crete last summer, it’s safe to assume that debating the future of travel insurance was not high on his agenda. However, following a moped crash on the island that left him with leg fractures and severe burns, he has started calling for travel insurance to be made compulsory for all.

Willis was able to have his injuries treated in a Crete hospital using his European Health Insurance Card (EHIC). However, he did not have the travel insurance required to cover the treatment, flights, airport transfers and doctor necessary for his return home. It was therefore left to his family and friends to rally round and raise £8,000 to bring him back to Derby.

“All of that effort would not have been needed if I had just had travel insurance in the first place,” Willis said. “I want it to become compulsory for people to have travel insurance before they go away. It should be something that is the responsibility of holiday companies or airlines when they sell tickets. I made a mistake [not taking out travel insurance] and hopefully other people going away will not make the same mistake I did.”

a primary concern with any compulsory insurance is the need for enforcement

Willis wrote to Bob Laxton, Derby North member of parliament, asking him to take his argument to the government. The reaction was positive. Laxton was reported as saying that the idea of bringing in legislation was something that was ‘worth looking at’. He was happy to sit down with Willis and discuss the issue. But that was before Christmas, and now Laxton is less supportive of Willis’s call.

“I won’t be doing anything with regard to this,” Laxton told ITIJ. “At the end of the day, it is up to people to take out their own insurance. I won’t be taking this any further in the [House of] Commons.”

Laxton holds this view despite recognising the problem of holidaymakers travelling abroad without insurance cover, citing another case brought to his attention involving a family who had taken their seriously ill father to Cyprus: “He travelled against medical advice and the family did not take out any insurance. The father died out there, and the family wanted the British Consulate to fly his body home at UK taxpayers’ expense. The majority of people are sensible about insurance, but a lot don’t think about the situations they might find themselves in. To bring in legislation on something that people either sensibly choose to insure against or not is mission impossible.”

With the Laxton route now closed, would Willis have more luck pressing his case with the travel insurance industry itself? What are its views on the need for compulsory travel insurance?

Malcolm Tarling, spokesperson for the Association of British Insurers, said a primary concern with any compulsory insurance is the need for enforcement: “How do you enforce it? You would have to check that people had insurance before they left – if you look at other compulsory insurances, such as motor insurance, there is still a sizeable amount of people who drive around without it. It would have to be policed. Then what happens if someone does travel without insurance and gets holed up in a hospital somewhere? Who is going to pay to get the person back? There will be pressure on the UK government to do so.”

The result, fears Tarling, would be an increase in the cost of insurance for customers: “More people should be covering themselves, but the answer is to encourage and persuade them to do so, not make it compulsory. There is no great appetite within the industry and government for this.”

premiums would decrease because anti-selection would be removed from the underwriting formula

Fiona McDonald, head of underwriting at Europ Assistance, agreed that making travel insurance compulsory would be unreasonable to deprive an individual of the choice to self-insure: “In the UK, the only class of personal insurance that’s compulsory is third-party liability motor insurance. This is for the very good reason that a car is a dangerous weapon. Do we really class travel in the same way? If household insurance is not compulsory, why should travel insurance be? The individual is entitled to make choices about the degree of risk they incur. Do we really want to live in a nanny state in which decisions on risk are taken out of our hands?”

There would also be a host of administrative and practical questions to answer, McDonald claimed: “Should all travellers be covered regardless of where they go, how long and what they plan to do? Will younger healthier people be paying extra to allow terminally ill people one last trip abroad? Would a responsible family traveller be willing to pay more to cover a reckless youngster on a gap year who will lose his hand whilst shark feeding? Who makes these decisions and how do they decide? Would this cover be paid through or a tax or a premium and set by government or insurers? Would everyone have to carry a certificate with them when they left the country and, if so, who would check? This could slow down exit processes at ports and airports and increase travel costs. It would be a logistical and bureaucratic nightmare.”

But Chris Price, head of Direct Line Travel Insurance, had a different take on the issue: “Travellers often don’t fully understand the implications of not having travel insurance. Despite government attempts, there remains confusion as to what is and isn’t covered by the EHIC [and] taxpayers’ money is being used to fund the problems of those who should have insured.”

Price states that most insurers have many letters in their case files from people writing in to ask for financial help, their lives torn apart through not having been insured. He continued: “Making travel insurance compulsory is a sensible move for travellers and the government alike. Additionally policies are likely to become more consistent in cover and even cheaper as insurers benefit from improved take up.”

Travel insurance is also not compulsory in the US, but Jim Krampen, co-founder, principal and executive officer at US insurer Seven Corners, favours its introduction. He also believes it would reduce premiums: “Insurance utilises the law of large numbers. Premiums would decrease because anti-selection would be removed from the underwriting formula and the critical premium mass would stabilise and be more manageable. Competition would increase and force the market to reduce premiums and add benefits and services above any minimum mandates. This would provide more choice for customers.”

However, he adds that the only way it would be introduced as law in the US is if it was ‘one-way’. This would see the US follow the recent footsteps of 15 Schengen visa countries, Malaysia and Dubai who have instituted compulsory visitor medical insurance as a requirement of entry.

Krampen explained: “The current political climate and Americans’ attitudes, specifically those with the means to travel abroad, would most likely derail any potential legislation requiring compulsory insurance for outbound travel. However, a portion of the increase in healthcare delivery cost in the US is due to foreign visitors with limited or no medical coverage who utilise healthcare services and leave without paying. The US should weigh the potential of bad debt healthcare cost savings with the bureaucratic cost to implement such a programme. It would include a minimum mandate to cover emergency room and inpatient medical expenses. This would include the stabilisation of a foreign patient for a pre-existing condition.”

Pari Morse, of US broker Columbine Consulting Services, agreed: “At a minimum, all travellers should be covered with a travel medical insurance policy that would provide at least US$1 million in coverage for medical expenses and emergency medical evacuation. Governments should enforce this by requiring the travel suppliers to show proof of coverage. It could be made part of the travel arrangements of each client at the time of booking.”

Morse added that there is already a growing trend for travel companies to require travel insurance for their clients: “They are doing this to protect their business from chargebacks due to client cancellation. This is advantageous to insurers because a larger number of insureds reduces the overall risk and allows them to reduce premiums while still increasing profit.”

UK consumer campaigner Which? has been vocal about a number of problems in the insurance offered by travel agents and tour operators, including the failure to advise on policy excess and terrorism cover. Indeed, since 1 January this year, these policies have come under the regulation of the UK’s financial watchdog, the Financial Services Authority, to meet such concerns.

“It is already pretty hard to book a holiday without the terms and conditions requiring proof of travel insurance,” said Dan Moore, senior researcher at Which? “But we don’t believe that travel insurance should be made compulsory. Travel insurance is very much down to your own personal circumstances, such as pre-existing medical conditions, or if you are swimming in shark cages or bungee jumping on your trip. We say to people be sure to get the coverage which is suitable for your requirements. If travel insurance was compulsory it is possible that people will just look and try to get the cheapest cover they can. This would be disadvantageous to anyone who then had to make a claim and found out that they were not covered.”

at the end of the day, it is up to people to take out their own insurance

Moore argued that even making some areas compulsory such as travel medical insurance would not be easy: “What elements should be made compulsory and which shouldn’t? There will be different issues wherever you go. Our message to customers is that if they are unclear about anything included in their policy, they should speak to the policy provider and get advice on what should be covered. They should tell them where they are going and if they are planning to do anything out of the ordinary, even if that includes just jumping on a moped.”