News Analysis: Covid and the travel insurance industry

Learn from the past, prepare for the future

Robyn Bainbridge looks back over 2020 – from the evolution of Covid-19 cover, travel insurance lawsuits, and fraud prevention strategies, industry leaders detail how, over the course of 12 tumultuous months, the global travel insurance market adapted to changing consumer needs and what it is doing now to further strengthen its offering

It takes time to adapt products for the market

As Antony Martin, Managing Director at UK-based ROCK Insurance Group, pointed out, the nature of the coronavirus pandemic situation has meant that product evolution has been vital for catering to the changing demands and needs of holidaymakers. Martin points out that, for a long time, the consumer travel insurance market has – by and large – not provided cover for pandemics. “Those that did, provided limited cover for medical emergencies, leaving the customer under-insured pre-departure,” he said. Luckily, things have moved on since early 2020, and the mainstream insurance industry has caught up, says Martin, with many travel insurance companies’ policies now offering Covid-19 cover.

But these policy adaptations have not come without their challenges. With many governments wary of setting any lingering rules or regulations regarding travel to specific destinations (Covid case numbers have been chopping and changing continuously throughout the last 12 months), it’s been difficult for the travel insurance industry to provide appropriate cover to travellers.

Commenting specifically on US operations, Jason Schreier, CEO of April Travel Protection in the US, notes: “It takes a good amount of time to make drastic changes to insurance coverage, as approval must come from 50 different states if you intend to sell nationwide like most travel insurers do.”

However, change has finally come. Covid-19 may well have been considered an uninsurable risk eight months ago, but needs must as the devil drives; from lockdowns to reassessing health and safety provisions, the world has had to adapt to Covid-19 and, for travel insurers that wish to remain resilient in a difficult market, they have learnt to do the same.

Collaborative initiatives can have low cover limits

ROCK’s Martin maintains that his company was among the first to launch a product that included protection against Covid-related issues, both pre-departure and during a trip. Elsewhere, he highlights that collaboration across the travel industry has been a key facilitator to adapting travel insurance products. “Businesses, particularly in the travel industry, have found themselves having to re-work their business models, and they have done this by finding effective ways to partner with appropriate brands/tourism boards to enhance their product offering.”

Most travel insurance policies weren’t designed to deal with a pandemic

Martin asserts that these collaborations have likely helped instil confidence in travel and will therefore be key to the travel sector’s recovery going forward. And Schreier says that he expects these types of collaborative programmes to become quite common. “They’re money-makers for the local governments and help mitigate delinquent patients,” he rationales. But he also notes that these programmes may not be that effective in getting people to travel who otherwise wouldn’t have if it wasn’t required. And he also warns that these plans may not offer the minimum level of cover that travellers actually need for select destinations.

Marty Firestone, President of Canadian travel insurance brokerage Travel Secure, has the same concerns. He tells ITIJ that many of the cover options being offered by Canadian airlines, for example, which often include travel insurance cover within the purchase of an airline ticket, cap the medical cover at CA$100,000. “A complete joke when you think about it. Probably two nights in a US hospital,” he said.
In truth, even for standalone travel insurance offerings, the kinks are not completely ironed out yet. As Martin tells ITIJ: “It is important to note that many [travel insurers] only offer this [Covid-19 cover] in case consumers fall ill during their trip and don’t offer pre-departure cover in the event they or their travelling companion contracts Covid-19 prior to the trip.”

Do customer expectations need to be adjusted?

In these challenging times, consumer distrust of the travel trade and travel insurance industry is at a troubling level. A recent report from the UK Financial Ombudsman Service revealed that in the UK alone, there had been 2,561 Covid-related travel insurance claims complaints in the three months leading up to September 2020. And what were they complaining about? Unclear exclusions leading to rejected claims.

Martin empathised: “There has been much confusion around which travel insurance policy to choose in light of the pandemic. Most travel insurance policies weren’t designed to deal with a pandemic, and, in some instances, that left a gap between what was covered and the customer’s expectation,” he reasoned. In some cases, this ‘gap’ that Martin identifies has led to full-blown lawsuits.

Travel insurers face lawsuits in Canada

Speaking with Sivan Tumarkin, Managing Partner at Canadian law firm Samfiru Tumarkin, which has been helping settle a bout of travel insurance legal matters since coronavirus restrictions began, it became very clear that a major factor affecting consumer distrust was the fallout from vendors offering credits and vouchers in place of refunds.

Interest and take rate on the CFAR upgrade has skyrocketed

“Thousands, if not tens and hundreds of thousands, of individuals have made trip cancellation insurance claims since the beginning of 2020, only to be denied by their insurers and told that because they were offered credits and/or vouchers for their flights, resorts, etc., they are disentitled from receiving reimbursement under their insurance policies,” he said.

Sivan tells ITIJ that the financial impact of Covid-19 has turned people’s lives upside down: “People justifiably have asked to get their money back for cancelled trips.” He also acknowledges that yes, many airlines and other vendors may risk ‘financial demise’ if they provide such refunds en masse: “Rightly or wrongly, that is a valid concern and we have already seen many businesses become insolvent since the pandemic hit.” Insurers, however, he says, are in a ‘different boat’.

“They sold a product which they now refuse to provide [for] consumers,” said Sivan. “The reality is that the vast majority of travel insurance policies I have looked at do not give insurers the right to take this position. Unless the policy expressly states that a travel or a credit disentitles an insured individual from reimbursement for trip cancellation, they must receive that reimbursement under the policy. Full stop.”

On various occasions when Sivan threatened insurers with legal action on behalf of claimants, they capitulated in exchange for a signed release containing confidentiality provisions, he says, adding that he believes insurers are likely ‘banking on individuals not pursuing their individual claims because of the relatively nominal amounts at stake’ (generally $10,000 or less) in order to avoid a ‘flood-gate situation’ where they have to pay millions of dollars in compensation.

Canadian broker Marty Firestone warns that insurers rejecting claims, as we see in this case, will make an industry that’s already perceived as looking for ways to get out of paying claims, as even more questionable.
So, what’s the takeaway point for travel insurers here? As Martin from ROCK said: “Insurers come under fire when their policies are unclear, so transparency is key for insurance brands to effectively protect their bottom line.” He added: “When you combine [the gap in what is covered and the customer’s expectation], with confusion around who is responsible for refunding customers for travel cancellations, I can see how [complaints], and even lawsuits, have occurred.”

It takes a good amount of time to make drastic changes to insurance coverage, as approval must come from 50 different states if you intend to sell nationwide

Did travel insurers gain a bad reputation in 2020?

Commenting on the negative effects that these lawsuits may have on travel insurers’ reputations, Schreier mused that it probably wouldn’t have a long-term effect. “I think people will remember this scary worldwide event and not how claims were denied as a result of it,” he said. “Even those who do remember the claim issue, I think most of them will assume that the issue will be corrected in the future. The denied claims aren’t an issue with certain companies or countries – it’s globally with all insurers.

“As long as your brand isn’t on an island as the only one not covering something, then the reputational damage is limited. It’s more of an industry problem, which means clients have no better option than to take what’s offered or leave it.”

CFAR cover uptake has skyrocketed

For now, both Schreier and Martin concede that travel insurance can’t cover every eventuality. As Schreier points out: “It’s not a coincidence that the entire world of travel insurance universally excluded pandemics and travel shutdowns from being covered. Insurance companies aren’t interested in that type of concentrated exposure, and covering all the claims from a pandemic like this one would have likely put most insurance companies out of business.”

But Martin still upholds that the travel insurance industry can make improvements to ensure that it is providing the essential protection that travellers need in the future. And, as Schreier is quick to identify, the situation doesn’t necessarily call for a full rethink of policy offerings; there is a product that already exists that does the job very well: Cancel For Any Reason (CFAR) cover. Schreier tells ITIJ that the ‘biggest change’ that has happened to the current programmes being offered is that interest and take-up rate on CFAR upgrades has skyrocketed. “We’re now seeing this extremely expensive option on 60 to 75 per cent of the policies we sell,” he said.

Travel will pick up, and with it, travel insurance

Clearly, customers are beginning to grasp the importance of travel insurance. “While tragic and life-changing, this pandemic will likely be a reminder to consumers of the need for travel insurance, which should set this industry up for tremendous future growth,” Schreier said.

For now, Martin tells ITIJ that ROCK has made a point to establish solid B2B partnerships, as well as continuing to adapt its policies to allow customers who can travel to do so safely. “We also have some exciting partnerships in the pipeline, which we cannot reveal just yet, and we will be further enhancing our product offering to align with the ever-changing demands of the trade and consumer,” he added.

Martin also predicts a quick recovery for the travel insurance industry once travel restrictions are lifted, and once more testing is introduced at airports. “The recovery of the travel insurance industry solely depends on how quickly the travel sector can bounce back, but it will; travel has proven its resilience time and time again,” he told ITIJ. And this is something that we shall hopefully begin to see a little further into 2021, following the widespread distribution of vaccinations. ■

A word from Simon Cook on Covid-related travel insurance fraud

ITIJ also spoke to Simon Cook, Head of Specialist Investigation Services – part of the Charles Taylor Global Fraud Solution, to find out whether there has been an increase in coronavirus-related travel insurance fraud over the last 12 months, and how the industry is responding to this

Charles Taylor has seen an increase in fraud referrals for claims in several areas of policy coverage, Cook said. “The number of claims for travel cancellation and enforced stays abroad have risen since March 2020, with cancellation claims accounting for 70 per cent of the total claims we've registered in 2020.”

However, Cook added that investigating claims on the ground during a pandemic doesn’t come without its challenges, among them local lockdowns and international travel restrictions. As such, it’s been integral that insurance fraud investigation services continue to maintain a network of investigators on the ground abroad, as well as keeping communication lines open with frontline claims staff, to ensure that they are aware of recent trends and scams.

‘Fraudsters come from all walks of life, even during a pandemic’ Cook tells ITIJ. “Looking to the future, as travel resumes, we may well see an increase in medical provider fraud, as providers struggle financially after the international travel downturn and associated reduction in revenue,” he adds. While challenging providers over issues like this, including over-treatment, is a difficult task (you don’t want to fracture a good working relationship with a facility/provider, as it could impact your customers in the future, Cook warns) – proactive, on-the-ground visits are an essential way to deter dishonest practices.

Elsewhere, Cook tells ITIJ that among the referrals to Charles Taylor’s Specialist Investigation Services during the pandemic were: false claims for the cost of commercial accommodation, where customers were actually staying in their own overseas property or with family members; cases where customers were setting up multiple cancellation claims under different circumstances, having had their travel cancellation claims rejected; some organised criminality where a group of fraudsters made similar false cancellation claims; and ‘bogus medical claims’, often falsely asserting that the customer has had to prolong a stay abroad after allegedly becoming unwell when, in actuality, Covid-19 travel restrictions have been the cause of their prolonged stay – “In these cases, customers have been known to claim for thousands of pounds worth of fictitious medical treatment, all paid for in cash, with no auditable trace of the cash in question and no evidence of the medical facility existing,” Cook said. Clearly, a gap in coverage in certain insurance policies can cause problems for insurers as well as customers, ITIJ muses.

Overall, however, Cook noted: “It's always important to highlight the fact that the vast majority of customer claims are entirely genuine.”