On 18 September 2017, the official alert level for Mount Agung, the active volcano that dominates Bali, was raised from ‘normal’ to ‘vigilant’. Chaos threatened as international flights were cancelled. Now the dust has settled, insurers are reflecting on lessons learned from past events. By Robin Gauldie
International media quickly latched onto the ever-popular meme of ‘trouble in paradise’, rolling out the familiar tale of holidaymakers marooned while travel insurers refused to help them. Australian newspapers claimed as many as 150,000 people were stranded when local authorities shut down flights to Bali and neighbouring Lombok as a safety precaution when Agung began pumping out clouds of ash.
More than one million Australians visit Bali annually, which makes Australia its second biggest visitor source (after China). Almost all of the 330,000 Britons who visit Indonesia each year also go to Bali. Around 15,000 Australian holidaymakers, and a much smaller number of Britons, are estimated to be on the island on any one day.
At the time of the volcanic activity, an exclusion zone of 10km was set up around Mount Agung, and visitors wanting to leave the island made their way to the airport. In December, Heather Pennock, destinations manager in charge of health, safety, crisis and operations at UK travel association ABTA, commented: “The airport is well out of the 10km exclusion zone around the volcano. Stranded Britons and those who have not yet travelled and wish to change their holiday arrangements should refer to their tour operator.”
Beyond warning against all travel within the 10km exclusion zone around Mount Agung, British and Australian governments issued no advisories against travel to Bali. An Australian Department of Foreign Affairs and Trade spokesperson, however, said the country’s Denpasar consulate had provided assistance or information to ‘several hundred’ Australians. STA Travel reported it had ‘around 500’ British clients in Bali. Most, the travel company said, had flight-only bookings, and their airline would therefore take responsibility for providing assistance or compensation.
Following the first alerts regarding the volcanic activity, Australian media reported allegations of Australians ‘stranded’ in Bali after their homebound flights were cancelled, and that they had been ‘abandoned’ by travel insurers. Naturally, some insurers stated they would refuse claims on travel policies bought after 18 September, when the Indonesian Government raised its official volcano alert level from ‘normal’ to ‘vigilant’. Others announced they would not honour claims by insureds who bought their policies after 22 September, when the alert level was hiked to ‘level four’, indicating that an eruption might be imminent. Others said they would accept claims on policies issued up to 22 November.
In fact, the number of international insured travellers whose homeward journey was affected was far lower than might have been feared. The immediate threat of a full-scale volcanic event receded, and by 7 December, Australia’s Department for Foreign Affairs and Trade advised that Bali’s airport was ‘operating normally’. So, the cost and potential reputational damage to insurers has been relatively low. This is partly because insurers have learned from previous experience.
The earlier Eyjafjallajökull eruption
In 2010, Eyjafjallajökull, a volcano in Iceland, erupted. Iceland attracts a mere 500,000 visitors a year, but the ash cloud thrown up by Eyjafjallajökull had far-reaching effects beyond the temporary closure of Keflavik airport. No-fly restrictions closed airports in the UK and mainland Europe for days, stranding an estimated 400,000 travellers from Britain alone. Thousands more were forced to change or cancel outbound travel arrangements. An estimated 107,000 flights were cancelled over an eight-day period. The Association of British Insurers (ABI) estimated the cost to the travel insurance industry to be £62 million.
As with other unpredictable events, the disruption caused by any volcanic eruption predictably triggers a round of buck-passing as customers call insurers, airlines and package tour operators to find out who should pick up the tab. “Travel providers will make their own decisions based on commercial considerations. It’s entirely up to individual businesses how they manage their own contingency plans,” said ABTA’s Heather Pennock at the time of the Bali event.
At the time of the Eyjafjallajökull eruption, some insurers sought to turn down claims, while some airline bosses, including British Airways’ Willie Walsh, called the closure of airports an over-reaction – hardly surprising, in view of the €148-billion loss to airlines estimated by the International Air Transport Association. According to Kevin Pratt, a consumer expert at British insurance and financial products comparison site MoneySuperMarket, many insureds mistakenly believed they were covered for delays caused by the eruption of the volcano, and this event highlighted the gaps in many policies. “The word ‘volcano’ was not in travel insurance policies. Some insurers paid out, but many refused to do so. With some policies not covering extreme weather events or natural disasters, customers were unsure of what was and was not covered,” Pratt commented on his company’s blog.
Since this time, some insurers have taken a tougher position on claims for travel disruption caused by volcanic ash. In 2010, although as few as one in four insurers covered such claims under standard policies, some offered goodwill payments. They were no doubt influenced by the UK Financial Ombudsman Service, which decided in favour of claimants, ruling that the ash should be treated as a ‘weather event’, not as an uninsurable ‘natural disaster’.
Who is responsible?
Meanwhile, the insurance sector’s argument that airlines, not insurers, should be responsible for assisting and compensating passengers in such cases was strengthened when Europe’s largest airline Ryanair lost a court case in which it argued that the ash cloud was an ‘extraordinary circumstance’ and so the airline could not be held accountable. According to the ABI, there is no broad ‘Act of God’ exclusion in travel insurance that would give an insurer automatic grounds to turn down a claim.
“The term is not these days commonplace in insurance policies,” said ABI chief media relations officer Malcolm Tarling. “Any cover against volcanic eruptions and, in particular, disruption caused by a volcanic ash cloud, will be set out in the policy. While it is not uncommon for disruption caused by this to be excluded, it is possible to get some element of cover against this risk, either through an add-on to your travel insurance or through a specific policy available in the market. From the perspective of an individual traveller, the golden rule is to check the scope of cover offered by any existing travel policy you have or are considering purchasing.”
Travellers heading for any destination that could be affected by a volcano-related event – even if quite remote from the volcano itself – would be well advised to make sure their travel policy covers them not only for emergency expenses incurred if they are temporarily stranded by an incident, but also should they decide to change their travel arrangements because a volcano alert level at their planned destination has been raised (as happened in Bali). “If it does not and you are concerned, you can ask your travel insurer if such cover is available as an optional add-on to your travel insurance policy,” said Tarling. Since 2010, many insurers have introduced such options. Columbus Direct in the UK, for example, offers bolt-on volcano ash cover from £8, offering £1,500 for emergency accommodation and alternative transport. That, in practise, allows insurers to say ‘Don’t say we didn’t warn you’, in the event of claims from clients who decline such additional cover. Given that volcanic eruptions are hard to forecast, some parts of the world are at higher risk than others. Indonesia is one. In 1883, volcanic island Krakatau (Krakatoa), between Java and Sumatra, went off with a bang that was heard in far-off Australia. In 1982, volcanic ash from Mount Galunggung, 180km southeast of Jakarta, caused failure of all four engines on a BA B747 south of Java. Thanks to the professionalism of its crew, the aircraft landed safely. In October 2010, Mount Merapi on Java erupted, shutting down airports including Jakarta. In 2014, flights to Surabaya and six other airports on Java were suspended due to the eruption of Mount Kelud. In 2015, thousands were stranded when Bali’s airport was closed by ash from Mount Raung on Java.
Checking the small print
Bali is not the only holiday destination in the shadow of a volcano. Roman Pompeii, buried by ash and lava in 79AD and disinterred during the 18th Century, has been a tourist attraction for more than 250 years, with 2.5 million visitors annually. Santorini is one of Greece’s most-visited and picturesque islands. Around 3,800 years ago the explosion of its volcano, Thira, wrecked civilisations across the ancient world and created a vast sea-filled caldera where up to a dozen huge cruise ships drop anchor daily. Thira last grumbled in 1950, when the Greek Government evacuated hundreds of islanders from villages like Oia. Deserted for decades, that former ghost village is now home to some of the Greece’s poshest boutique hotels. Within sight are the islets that rose from the sea after Thira’s last episode. The sea around them is warmed by vulcanism. Above Pompeii, Vesuvius still smoulders. The Canary Islands, favoured by millions of northern European holidaymakers, are dotted by active volcanoes like Teide on Tenerife and Cumbre Vieja on La Palma. Meanwhile, hundreds of flights pass near Iceland and its volcanoes daily. Aviation authorities say they have learned from the chaos caused in 2010, and that a similar event now would have no significant impact, but insureds planning a trip to Naples, Santorini or the Canaries, or a flight through North Atlantic airspace, should double-check the small print on their travel policies for volcano cover.
By mid-December, as far as the UK media was concerned, the focus was no longer on hundreds marooned in Bali but on thousands stranded at London Heathrow (the world ‘s second busiest international airport) and other UK airports by snow. Snow? In December? In the northern hemisphere? Now that’s unpredictable. ⬛