First published in ITIJ 122, March 2011
For many holidaymakers, travel insurance is just an add-on item, often bought at the last minute with little or no scrutiny. However, the discrepancy between the perception and reality of protection can often be stark. Robert Bailey investigates the quality of cover offered in credit card deals
Millions of people take trips abroad without travel insurance every year, some willing to take the risk, but others in the mistaken belief that they have ‘free’ cover with their credit card. However, with single-trip, stand-alone travel insurance priced at between five to seven per cent of the cost of a trip, seeking means to avoid such ancillary expenditure can be tempting. But what may amount to minimum cover could turn out to be virtually none if a consumer is relying on assumed protection when using a credit card for travel purchases. Misperceptions may also arise for those preferring to pay for travel using a debit rather than credit card to avoid paying any extra fees for transactions. Debit card holders’ rights tend to be even more circumscribed than those of credit card subscribers.
While travel accident insurance may be provided by a credit card, this typically offers cover in the event of mishap solely during the actual period of travel to and returning from a destination. Consumers are constantly advised to pay attention to travel insurance details, but for some it is tempting to lean on something seen as inexpensive or even seemingly not costing anything. Card issuers are also keen to promote their products with a package of benefits to attract subscribers, but in reality, nothing is for free. The problem is that travel insurance is a complex product. Many customers expect travel insurance to cover any and every eventuality. But travel insurance policies contain strict limitations and exclusions as to the cover provided and the amounts the insurer may have to pay.
Quantifying the number of claims arising out of the use of credit cards for travel purchases is difficult, but given a growing ‘last minute’ purchase of travel and the exponential growth in the marketing of credit cards globally over the last two decades, the scope for disputes is growing. For a credit card underwriter, the dilemma is how to reduce the problem of adverse selection, while for credit card companies operating in a competitive field, the option is either to hike premiums or to keep prices low by minimising cover risk.
the dilemma is how to reduce the problem of adverse selection
But exclusions and limitations are often not discovered by the customer until a claim is made, and they form the basis of many of the complaints seen by bodies such as the UK’s Financial Ombudsman Service (FSO).
In general a basic credit card such as the ubiquitous Mastercard, unless it is a premier or prestige type providing travel insurance as part of a package of incentives, will not in itself provide cover. Different credit cards offer varying levels of cover and have different limits on what they will pay. In the UK, NatWest’s Advantage Gold card provides worldwide travel insurance including medical cover, personal liability and belongings, travel delays and cancellations within its fee, provided that the card is used to purchase part of the holiday. Barclays Premier Card has travel insurance in its package, but this is only activated when the card is used to pay for any travel. LloydsTSB Gold Card also provides travel cover that includes medical insurance, personal liability as well as cover for damaged or stolen baggage. HSBC offers travel insurance with its Platinum Card, but only for an extra fee.
There are some premium cards that do provide a more comprehensive level of insurance. American Express’ Platinum card offers a package covering personal accident, medical costs, trip cancellation and baggage loss, as well as travel delay. But the Platinum Card limits its insurance to not more than 120 consecutive days at any one time
The Egg Card and Virgin Credit Card offer partial travel insurance cover. Egg for example only offers travel insurance when holders are travelling on a type of transport that has been purchased using their card. Cover is limited to travel to and from a destination or excursion while on holiday.
Among its incentives, Sainsbury’s Gold Credit Card offers worldwide family travel insurance through FirstAssist with cover for two adults and up to six children, including winter sports. The Card is administered by Sainsbury Finance, a joint venture with Lloyds Banking Group.
Such cards may provide very competitive and comprehensive travel insurance, but in general consumers need to guard against assumptions. In particular they need to ascertain whether what is provided in effect is only a very limited personal accident insurance policy.
However, with consumers focusing inevitably on travel arrangements and the vacation itself, it is all too easy neglect attention to the details of insurance cover. Online research conducted for Sainsbury Credit Cards by ICM last September found that 1.28 million people in the UK booked summer vacations less than two weeks before going on them, with 500,000 booking holidays just a week before departure. Even more alarmingly, Sainsbury Bank’s research found that of the estimated 13 million people planning to purchase a vacation from the start of 2011 to the end of January, one in five did not intend to buy travel insurance for their trip.
Horses for courses
For those living within the European Union and travelling on a short business trip to Europe, then the cover offered by most card policies together with a European Health Insurance Card (EHIC) card might be judged to be adequate. A family holiday, and especially a long-distance one, may be an entirely different matter when medical emergencies, cancellations and variety of other potential losses are taken into account.
“with prestige cards there is a tendency by card holders to think that all expenses are covered, leading to disappointment”
Whatever the type travel insurance cover, card holders are not absolved from informing providers about any pre-existing medical conditions that they suffer from. In common with all other types of travel insurance, pre-existing conditions have to be disclosed to avoid potentially invalidating all of the insurance cover.
“Clearly, few people read the policy, let alone the small print, while with prestige cards there is a tendency by card holders to think that all expenses are covered, leading to disappointment when excess conditions, exclusions and maximum levels of cover are pointed out,” comments Olivier Domange, manager with Paris-based Groupama subsidiary Mutuaide Assistance.
France in fact provides even basic credit card holders with the most generous travel insurance cover in Europe, offering for example repatriation and up to €11,000 medical expenses, as well as ski rescue expenses for standard credit card holders for trips up to 90 days. Prestige card holders fare even better, with €150,000 medical expenses cover, trip cancellation, lost luggage as well as delayed flights.
Elsewhere in Europe, cover is less generous. Domange points out that even the most comprehensive card available in Belgium, the Dexia Bank Mastercard Gold card, for example, has a €50,000 cap on travel cover. Wherever a card holder is domiciled, the biggest limitation with travel insurance is that cover only exists if payment has been made for some or all of the cost of travel on the credit card, which is considered a trigger for the travel insurance to be activated. A card user has to make sure the insurance is activated. A so-called ‘free’ policy may only be valid if a customer has booked travel and any accommodation on the card itself, may not cover certain activities during a holiday and also only give reduced cover for certain contingencies. Credit card travel insurance may be ineffective for corporate work-related trips, which are usually arranged through an outside travel management organisation and invoiced back to the company, not paid on personal credit cards.
In the UK, consumers have a degree of protection on card purchases irrespective of whether their card provides any form of travel insurance through Section 75 of the Consumer Credit Act. This makes the credit card company jointly responsible with the original supplier for claims. Responsibility only applies where goods or services are bought using types of consumer credit where arrangements are already in place between the supplier of the goods and the provider of the credit. Where the consumer uses that credit to make a purchase, this creates the necessary connection between the consumer, the lender and the supplier. For Section 75 to apply, the provider of the credit and the supplier of the goods as well need to be separate businesses.
The regulation also only applies if a person has used a credit card to pay for travel costs, which have to be for an amount in excess of £100 and not more than £30,000. However, the section may not always apply to transactions where a consumer has bought online, using a credit card on a website that uses a secure third-party payment system to process credit card payments. Such payment mechanism can break the chain of arrangements that must be in place between the consumer, the lender and the supplier, the FSO points out. However, not all types of payment mechanisms used on suppliers’ websites prevent Section 75 from applying. But a claim on a credit card transaction can only succeed against the company that took the money, not against any other company that may be involved in the purchase.
According to Mary-Jo McDonald General Manager for First Assistance in New Zealand: “The issue with credit card insurance as I see it now is that people have to prove that they have ‘validated’ their cover – usually by purchasing a percentage of their trip on their card. This can get quite complex – as there are all sorts of loopholes designed to make it easier for the traveller to qualify for the free cover, but what it ends up doing is potentially making the average consumer confused.” She added: “When it comes time to call the emergency assistance provider we, have to go through the process of tracking down proof that the person actually did spend what they said they had spent, and therefore is covered. Mostly, the banks are very good at helping with this – but it still adds extra steps and time to case management. We have to ask the customer a number of details that they probably don’t really want to be bothered with at that particular point.” MacDonald suggested that to improve this, there should be an annual travel insurance fee on the card, so that there is need to have any particular spending criteria to activate the cover and card holders are automatically covered if they have paid their premium.
even the most comprehensive card available in Belgium has a €50,000 cap on travel cover
Clearly, for the unwary – and there seems evidence that a good many travellers fall into this category – reliance on a credit card for travel insurance could leave them entirely unprotected against a mishap during their trip. Also, credit card insurance is often only valid for three months and, unlike stand-alone travel insurance policies, cannot be extended.
Medical costs continue to rise, and even treatment for simple conditions may involve a three-figure fee. UK consumer organisation Which recommends that travellers should seek at least £2 million cover for medical expenses, £1 million for personal liability, £3,000 for cancellation or curtailment and £1,500 for luggage and for money in a travel policy. Such cover may be available with some premium cards credit cards for which a fee is paid, but reading the small print of a card offering travel insurance is essential. In general credit card travel insurance cover is likely to be limited.
Olivier Domange of Groupama subsidiary Mutuaide Assistance comments: “The issue is that if you improve a guarantee, costs will rise and the price of the premium plus bank commissions cannot be kept low enough to be painless within the price of the card.”
Nevertheless, he observes that banks are performing better than in the past when staff tended to promise everything to a prospective card subscriber. But there still seems plenty of scope for the travel insurance industry to up its game and make any policy limitations clear rather than being economical with the truth.
“the issue is that if you improve a guarantee, costs will rise”
“Travel agents are specifically trained by brokers to sell travel insurance even to those who pay with prestige cards. Commissions on extra services such as insurance and car rentals are vital for the tourism industry, so a consumer cannot expect objective advice from travel providers,” Domange believes. But, in spite of the uncertainty, there are no moves towards global standards of cover, Domange observes. A universal standard would be a hard sell because of the charges that would have to be made for premiums, and not every card holder would require the insurance. However, a European standard could evolve from super prestige cards, with cover being eventually adopted by other cards. “It would make sense to underwrite at the European level, since client needs, insurance costs and operations are much the same. Premiums as such would be lower, and it would diversify risk for the insurer.”