First published in ITIJ 85, February 2008
Julia Horton evaluates whether insurers will continue to cover the more extreme end of the holiday market
“Small, agile and stalwart, she was a go-anywhere ship for the go-anywhere traveller.”
That glowing tribute to the ill-fated MS Explorer from her owners, extreme holiday specialists GAP Adventures, almost glosses over the inescapable fact that last November, she suddenly sank off the Antarctic coast. Dozens of holidaymakers fulfilling a dream of following in the wake of legendary polar explorer Ernest Shackleton got a bit too close for comfort as, like their hero, they found themselves stranded in the most inhospitable place on earth.
Nearly a century after Shackleton’s ship the Endurance was slowly crushed by ice floes, the MS Explorer was holed by an iceberg. Amazingly, all 100 passengers, including just over 20 Brits, were plucked to safety by other cruise ships that just happened to be both near and large enough to pick them up. It was a wake-up call to the holiday industry, proving beyond any doubt that the world’s first purpose-built Antarctic cruise ship was not invincible. But there remain plenty of ‘go-anywhere’ travellers who are more than willing to take their chances. And in Antarctica there are growing numbers of cruise ships competing for their custom.
The Association of British Travel Agents (ABTA) says that the number of Britons taking an Antarctic cruise has nearly trebled in recent times to 20,000 last year (2007) alone – up from 7,000 around five years previously. To put that in perspective, it is well below the hordes heading for some simple summer sunshine every year, with 13 million Brits still content to jet off to Spain each year. But more and more are being lured away by international tour operators busily urging them to ditch the traditional week in the sun and have a go at climbing Everest, or, with no hint of irony, given the parallels with MS Explorer, diving the Titanic. Next year, Virgin boss Sir Richard Branson is even hoping to launch space tourists into orbit, sending adventurous types off the planet entirely. There is no doubt that the market for extreme holidays is growing, but is it worth insuring ordinary people on ever more extraordinary trips when the stakes seem so high?
It might be reassuring to note that despite rising Antarctic cruise numbers since she first set sail for the frozen south in 1970, the MS Explorer was the first cruise ship not to return. And despite the obvious dangers, all aboard were successfully evacuated and flown home, with just a handful needing medical treatment for hypothermia. However, the popularity of such cruises has brought fears that more and more vessels that are not designed for navigating the icy seas are being re-routed from the far less dangerous Caribbean climes to cash in on the trend. And if a ship specifically created to withstand the hazards sinks in what were, by Antarctic standards, good weather conditions, the chance of accidents, and therefore claims, can only increase.
there is no doubt that the market for extreme holidays is growing
While the survivors of the MS Explorer were undoubtedly very lucky to escape unscathed, another party of tourists visiting the Antarctic nearly 30 years ago were far less fortunate. All 257 people on the sightseeing flight from New Zealand died when their aircraft crashed into the slopes of Mount Erebus in 1979. The cause of the crash was a mistake in the computerised flight plan, which led to a navigational error, sending the plane straight towards the mountain. Unable to see because of poor weather conditions, the pilots had descended below the authorised altitude. Their inexperience in flying over Antarctica was said to have been a contributory factor in the crash.
Similarly for travel insurers, remote, harsh locations like Antarctica and Everest are something of an unknown quantity that, if not approached carefully, could lead to disaster.
Jonathan Thomas, group underwriter for accident and health travel business for Munich Re at Lloyds, provides policies for professional athletes, such as extreme yachtsmen, as well as experienced adventurers like Steve Fossett – now missing presumed dead. Thomas says: "When [amateur] extreme skiers want to be dropped off at the top of a mountain to powder ski down, two issues arise when it comes to underwriting. First there is death and disability. With normal skiing you expect more people to be injured than to die, but in remote places, if they injure themselves they are far more likely to die.
"Secondly, there are medical expenses. There is a higher risk of incurring a medical expense claim. A compound leg fracture will still cost £10,000 to £15,000 [to fix] wherever it happens, but the remote location of extreme holidays can make costs astronomical. Often you will need military transport for recovery from a mountain in a remote location, and because of that costs can be anything. [Similarly] if you are extreme yachting around Antarctica the sky's the limit [in terms of cost]."
Another factor makes the risk even harder to calculate, as he explains: "There are huge variations in the level of competence among extreme holidaymakers. They simply don't have the same level of competence or fitness that a professional sportsman has.”
Putting extreme yachting into perspective, he points out that in Britain, fishermen have the highest occupational risk to life and limb: "People tend to think being a miner is pretty dangerous, but the risk for a fisherman is seven or eight times the risk of being a miner in [the UK]. And yet you have these people saving up and going into deep oceans in the middle of nowhere on a little yacht [for a holiday]. Extreme sailing is extremely risky."
He agrees that the market is increasing, but says it is ‘too diverse’ and specialised to collate meaningful figures on the number of policies or claims. Which leaves insurers playing even more of a guessing game. At Lloyds, which is renowned for taking on such work, they clearly think it is worth it, with Thomas personally underwriting around a dozen policies a year. Considering the pros and cons for the industry, he says: "Do I think there is enough of [extreme holiday business] to make a policy of it and say at a certain point that we have got the right price? No, because you don't get enough of the risk [to be able to make such an accurate estimate of possible costs]. We think we have the relative price by extrapolating from existing risk and looking at the additional risks, or more correctly at how much more restrictive we want to be. The very fact that they are extreme means that they are not usually capable of being lumped together for a standard form of coverage. You can't give a standard travel insurance policy to someone climbing Everest, when the likelihood is that they might have to be taken off base camp in a helicopter, if you could even get a helicopter up there."
To illustrate the practical problems, and the costs they bring, he adds: "The most difficult plan I ever had was not even for an extreme holiday. They were visiting hot springs in Ecuador at considerable height and they had to be airlifted out. But because the city was so high, around 10,000-12,000 feet, you could not fly in one of the executive jets kitted out with medical equipment that are normally used in these situations, so we had to use a bigger plane, which considerably increased the cost."
for travel insurers, remote, harsh locations like Antarctica and Everest are something of an unknown quantity
At the British Insurance Brokers Association (BIBA) there has been a lot of work to ensure that pursuits that were once seen as extreme – such as paragliding, hot air ballooning and even horse riding – are now covered as standard in insurance policies. But the group believes that the ultimate extreme trips will only be covered by specialist firms, which as a result can make a big profit from their expertise.
Graeme Trudgill, technical and corporate affairs executive at BIBA, says: "The most extreme extreme Everest jobs are very specialised. You won't be able to get cover from non-broker standard Internet sites, but you will be able to get cover from a specialist. They make sure that they fully understand the risk so their claim ration is not actually as bad as a normal insurance policy, because they have worked everything out and advised on how to minimise the risks.
"It is a niche business, and niche businesses are traditionally more profitable – a bigger premium is charged for a bigger risk. In the same way that firms specialise in insurance for people with serious medical conditions and diseases like cancer, you have insurance experts for mountain climbing who would know if you have got this kit and these conditions, at this time of year on this particular mountain range, what the risk will be."
He warns of the dangers of general firms trying to make money without knowing enough about the risks: "Certain insurers in certain markets have had to pay out far more in claims than they have taken in premiums. I'm not sure about extreme pursuits, but companies have been trying to put cheap premiums out there for people with certain medical conditions when claims are going to be higher [than the firms have charged for]. Caution is what's needed. Anyone who is going to insure these kinds of extreme risks needs to have an expert understanding. The brands are not going to have that understanding or the technical requirements to appreciate the dos and don'ts with these things. It's really down to the experts."
As for space tourism, Trudgill says that won't be mainstream either: "You are not going to have 200 insurance firms offering space travel insurance.”
Out of this world
However, last year BUPA, better known for its private healthcare, announced that it was considering boldly going where no travel insurers have gone before. Never before encountered issues, such as the effect space travel will have on people's bodies, are among the unknowns that the health giant would presumably draw on its medical expertise to assess.
Nick Potter, head of BUPA Travel, stresses that the idea is still a long way from becoming reality: "We have put it in the five to ten year category, so it is on the backburner at the moment, but space travel is something that people will do and the market needs to take account of that."
Despite the keen interest in outer space, he adds that other existing extreme adventure activities, like diving in a submarine to the Titanic, are 'too specialised' for BUPA to take on without in-house specialists to underwrite them.
the ultimate extreme trips will only be covered by specialist firms
Meanwhile, as people search for ever more adventurous experiences, it is likely that insurers will constantly have to reassess the market. However, as Malcolm Tarling of the Association of British Insurers says, that is what insurance is all about. He says: "Insurance companies always keep an eye to the future. They will be looking at ways of providing cover. It all comes down to risk at the end of the day. The sinking of the MS Explorer was an unusual event, but that is what insurance is for. Insurers would not offer cover unless they thought the risk was something they could qualify."