First published in ITIJ 136, May 2012
There are various rules and regulations in force in certain countries around the world regarding mandatory travel cover, but the UK travel insurance industry is, on the whole, less than impressed by recent calls for such cover to be made compulsory on its own turf. David Kernek rounds up the latest opinion
The UK’s consul in Barcelona resorted to classic English under-statement when talking recently to the BBC Radio 4 You & Yours programme about the help he’s expected to provide for British holidaymakers in trouble with everything from lost passports and money to accidents and arrests. “Travelling without insurance,” he said, “is not a good idea.” With the Association of British Travel Agents (ABTA) reporting that one in five British travellers go overseas without insurance – mistakenly believing that either the UK government or the European Health Insurance Card (EHIC) would take care of all medical and repatriation costs – is it time for British lawmakers to seriously consider putting travel cover on the same legal footing as motor insurance? It wouldn’t be the first country to do so. But would the benefits outweigh the potential pitfalls?
The prospect of tourists without proof of travel cover being stopped by passport checkers from getting on planes and ships – and on Eurostar trains to France and Belgium – might seem absurd, but the leap to compulsion has already been taken by some holiday providers.
It’s difficult to find a cruise line of any size that does not make proof of travel cover a key pre-requisite for embarkation. Thomas Cook’s warning to passengers is typical: “All passengers are required to have travel insurance as a condition of travelling with us. You are strongly urged to ensure you have declared any pre-existing medical conditions to your insurer.”
“The reality is that it would be practically impossible to implement.”
P&O and Cunard holidaymakers must have a minimum of £2 million cover for medical and repatriation costs before they can sail. “Most UK cruise lines have now made travel insurance mandatory,” says Carolyn Spencer Brown, editor-in-chief of Cruise Critic. “Although travellers don't have to purchase the cruise line's own product, they will have to show proof of cover.”
UK-based AdventureX – whose kayaking, whitewater rafting, scuba diving and mountain bike holidays in remote locations from South America to Australia promise ‘a never-ending shot of adrenalin’ – says cover for medical expenses, helicopter evacuation and repatriation is ‘compulsory’ for its trips … and it wants to see policy details before departure. Private companies, of course, are free to set their own contractual terms with customers, but should governments have the legal power to stop people travelling abroad if they do not have insurance cover, given that skiing in Austria or an unsupervised trek across America’s Mojave Desert can be as risky as whitewater rafting in Ethiopia?
A British MP thinks they should. Andrew Bridgen has called for compulsory travel cover after the stepson of a constituent suffered severe head injuries in a motorbike crash on Bali. Matthew Taylor was working as a teacher on the island. He had no medical cover because, said his stepfather, the premium would have swallowed half of his monthly salary. He was taken to Singapore, where his hospital care – at £2,000 a day – cost his family in Derbyshire more than £200,000 before he was well enough, after major surgery, to be flown back to Britain.
“You are not allowed to take your car abroad without adequate insurance, but you are allowed to take yourself,” says Mr Bridgen, who has suggested a system could be introduced to flag-up uninsured travellers at airport check-in desks. “Most people get away with it, but Matthew Taylor’s case is a tragedy that highlights the risks people are taking. If it is mandatory, people will realise they are going against the rules by not getting insurance.”
It’s an idea that might be welcomed by host countries fearful that their hospitals could be swamped by uninsured visitors. A leader of the Australian Medical Association – Dr Stephen Parnis – says making health cover a visa requirement should be considered. More than 30,000 foreign nationals left hospitals in Victoria state with unpaid bills amounting to AU$6 million (£4 million) in 2010/11. More than half of what the Australian press calls ‘freeloaders’ were from countries with which Australia has no reciprocal healthcare agreements.
European Union Schengen Treaty states demand proof of medical and repatriation cover for visitors arriving from countries from which they require a visa (it’s enforceable through the visa application process), and since 2010, Cuba has been requiring foreign tourists to have travel insurance. Visitors who arrive without it have to buy a Cuban policy at air and sea ports at a cost of £1.56/$2.50 per day. But with a maximum cover of £3,130/$5,000 for illness, death or medical repatriation – and with an air ambulance flight from Cuba to Europe costing £37,000/$60,000 – the cover can fairly be dismissed as token.
“You are not allowed to take your car abroad without adequate insurance, but you are allowed to take yourself
While the Swedish ambassador to Thailand has suggested that compulsory travel insurance would help travellers and the local health services, especially in the Phuket region – a major destination for Swedish tourists – the Malaysian government has legislated to make travel cover compulsory for its citizens leaving the country by air, sea or land. The law, however, applies only to people who have booked travel with companies that are members of the Malaysian Association of Tour and Travel Agents.
The response of UK insurers to compulsory cover is, however, less than enthusiastic. “We strongly urge people to get travel insurance – it ought to be seen as essential – but we don’t go down the line of compulsion,” says Malcolm Tarling, chief media officer at the Association of British Insurers. “Firstly, you’d need to have legislation. Then, how do you police it? Who would enforce it? Would it mean that people turning up at airports and ports without proof of cover would be turned away? And even it were to be made compulsory by law, does that mean that everybody would get cover? Car insurance is mandatory, but we know that four per cent of motorists drive without cover. No, we much prefer encouragement, persuasion and reminders.”
Greg Lawson, head of retail at the Collinson Insurance Group, is similarly unexcited by the idea. “It’s an interesting proposition, but looking at all the factors and implications, the benefits would be too small and the costs too big. I’d be surprised if insurers and intermediaries would want to go with it. It would be difficult to create a product that would be right for everybody.” He added: “Pre-existing conditions would be one problem. You could have a simple, standard policy that would suit young, fit people, but when you’ve got older people with angina, you’re running into costs and complexity. Who would sell it? I can see that brokers would welcome it, but in today’s world of independent travel, aggregators are the major channel and their costs are already cut to the bone. The product can’t go much lower. As for travel agents and tour operators, they account for about only eight per cent of travel insurance sales.”
Lawson agrees that motor insurance is not the best example. “Although that is mandatory, we know that many British motorists drive without it, even though they know they risk prosecution. That raises doubts as to the number of people who would comply with compulsory travel insurance. Would airlines and travel companies want to monitor it? Probably not. Who would see that it's administered properly? It’s taken 10 years for the insurance industry to put together a fraud database!”
And there is a libertarian point, he says, on which politicians in all of the major parties would be very reluctant to pick a fight – freedom of movement. “Someone who isn't allowed to drive because they have no motor insurance has the alternative of using public transport. Preventing people leaving the country is quite a different matter. Instead of spending a vast amount of money setting up a complex bureaucracy for administering compulsory insurance, it would be better for the industry and the government to spend 10 per cent of that promoting the value and benefits of travel insurance.”
Chris Blackman, product development consultant at AllClear Insurance, points to another tragedy that highlights a major weakness in the case for compulsory travel cover. A 23-year-old Lancashire woman – Holly Raper – was badly injured in Tasmania last December while herding cows on a quad bike. Her family’s claim for six-figure medical costs and repatriation has been rejected by Columbus Insurance, which says her policy covered neither the work she was doing nor riding a quad bike, which it rated an extreme sport. The Tasmanian state government’s workers compensation scheme picked up the bill for Holly’s repatriation flight.
“In theory, a compulsory policy should lead to less negative press for the travel insurance industry.”
“I think the issue here,” says Blackman, “is that while the UK government could introduce compulsory cover, even if we were to go down the route of highly prescriptive processes for selecting the correct policy for individual needs, there will still be tragic cases such as Holly’s where cover is not in place as it should be, and the bill still falls to the individual. With this lack of a total solution, I really don’t think that compulsory travel insurance will be high on the government’s agenda.”
He points out that in 2011, the industry saw no fewer than 12 people falling from hotel balconies and numerous other serious injuries caused by excessive alcohol intake. “Insurers simply can’t cover claims where individuals have deliberately placed themselves in such high-risk situations, hence there are specific exclusions to this effect and other exclusions about being under the influence of alcohol. Insurers would have to charge astronomical premiums to cover such events and everyone would be paying so much more for insurance that it could cost more than the holiday. So, it would not protect everybody, and it wouldn’t protect brand reputation for the insurer either.”
However, mandatory cover would draw travellers’ attention to insurance and increase overall travel gross written premiums, says Blackman, adding: “But I doubt if there is any serious motivation from insurers as travel represents a very tiny part of their overall personal lines business. In some cases, income from travel is probably lost in the rounding error on the bottom line of the balance sheet! For insurers, there may be a ‘be careful what you wish for’ attitude, as predicting the final outcome would be difficult.”
Some people might favour the alternative of going one step further than the motor insurance model and legislating for universal cover. “But this would remove one of the Conservative Party’s tenets – customer choice – and it would also kill any competition, and I doubt the industry has any appetite for this solution, let alone the government,” says Blackman.
Another downside he flags up is the probability of a substantial increase in claims – legitimate and spurious – that would increase industry costs and hit profitability. “The industry would need to put in place a claims record system linked to passports in order to track claims histories, much like the motor insurance currently has.”
On the other hand
At Rock Insurance, managing director Anthony Martin is convinced that mandatory travel cover is an idea whose time has come, and thinks the industry should be doing more to put the issue on the government’s agenda. He says the problem now is that many travellers mistakenly believe that the EHIC system and reciprocal government health agreements provide adequate cover when, clearly, they do not. The industry is seeing an increasing number of repatriations.
“I definitely think it should be compulsory for people who are travelling abroad to have insurance,” he says. “There are any number of reasons to have it, and not to have it is very irresponsible. I see no reason why it couldn’t be enforced along with passport checks at airports and sea ports.”
Would a one-size policy fit every tourist and traveller? “The essential areas of compulsory cover need to be medical and repatriation, with a minimum of £1 million, and £2 million for the US and some other parts of the world. A standard minimum policy would cover those, and people could top it up with baggage and other cover if they wanted to.”
Martin agrees that one result could be higher costs arising from an increased claims volume, but points to the ‘unnecessary costs that occur when people do not have insurance’. “As far as pre-existing medical conditions and range of cover are concerned, there has to be a level of common sense on both sides. Consumers need to ensure that they get the right cover for whatever it is they are planning to do, and insurers have to make the terms and conditions of a policy clear to consumers.”
A minimum mandatory policy … would become a standardised policy that would probably mean both diminished cover and less choice for consumers
He wants to see the industry doing more to get the government to pick up the issue. “The government should be waking up to the problem, but it’s not going to unless it’s told about it.” A Don’t Travel Uninsured campaign – to raise awareness of the value of travel cover and generate sales – run by Rock with Monarch Airlines and the Daily Express and Daily Star had been successful, he says, in getting the message across to holidaymakers.
“I do not think [travel insurance] ought to be mandatory,” says Chris Price, EMEA (Europe, Middle East and Africa) regional director of travel at ACE European Group. “Not because I think it’s wrong, but if you engage the idea, you have to ask who is going to enforce it. Other countries certainly would not. That means an exit check, and that is not going to happen.” He says some might dispute the figure, but he estimated travel insurance penetration at roughly 85 per cent of the UK population. “My view might be different if the penetration was as low as 30 per cent; I’d think something ought to be done. But given its high penetration, given that it’s a well-known concept – it’s ubiquitous – and that compulsory cover would need to be enforced, I think the government wouldn’t go for it. I think we’d be challenged if asked by the government to say what we’d really be gaining.”
He says the government is, however, looking for ways to curb the increasing demands made on UK consulates by people who have lost money and passports. “The government should get a clearer and stronger message across – especially to young people – about the EHIC system. Some people say that you are doubling up if you’ve got the card and travel cover, but that isn’t true. It’s not a replacement for travel cover, as it doesn’t cover loss of valuables and passports, and repatriation. In Spain, it is sometimes no use whatsoever. They’ll look at it, and say that if it’s not made in Spain, they’re not interested, or you could be taken to a private clinic or hospital, which will not accept the card. It’s good to have, but it’s not the be-all and end-all. There needs to be more education about this.”
A minimum mandatory policy, he thinks, would become a standardised policy that would probably mean both diminished cover and less choice for consumers. The cost of premiums might fall initially, but less choice could ultimately mean increased premiums. How, he asks, could a standardised policy cover pre-existing conditions and unusual or high-risk activity? “It is almost impossible to standardise cover for the health element in travel cover, which is a distinct type of insurance bundled as a package and sold extremely cheaply. The wording has to be complex because they can’t cover every single eventuality.” His last word on the proposition? “No, it’s quite crude.”
Tom Bishop, head of travel insurance at Direct Line, describes compulsory travel insurance as an ‘admirable suggestion’ and offers one – but only one – point in its favour: “In theory, a compulsory policy should lead to less negative press for the travel insurance industry. Existing travellers who chose not to take out insurance would be protected, and consumers who find it less easy to obtain cover (the elderly or those with certain medical conditions etc.) would be able to travel.” But that's as enthusiastic as he gets. “The reality is that it would be practically impossible to implement. What would the penalties be? Who would foot the bill for feeding uninsured travellers information into a central travel insurance database? It would probably need a government agency to enforce any mandatory policy because of the variety of ways in which consumers can book a trip. It would also require a co-ordinated effort by all tour operators, air, sea and rail carriers to have any chance of enforcing such a policy. These logistical and cost challenges mean that mandatory policies would be difficult to introduce.”
To Bishop, the comparison with motor insurance doesn’t stand up. “One of the main reasons why a compulsory motor policy exists is because of the wider need to reduce the burden on the public purse. With travel insurance, the uninsured traveller has to foot the bill and there is little or no cost to bear for the country as a whole. A mandatory travel insurance policy would require a minimum standard. With a third-party motor policy this is easy enough to implement, but with travel there are several scenarios – such as exceeding their trip date limits, not declaring pre-existing medical conditions, falling foul of an industry standard exclusion – where the customer risks invalidating their policy.”
The market, he says, is unlikely to support the introduction of a mandatory policy without a significant increase in premiums. “There is also a possibility that some insurers could withdraw from the market if the government restricts underwriting criteria for travel policies, and it’s also likely that reinsurance capacity would be reduced.”