Travel insurance adapts to growing natural hazard risk

Changing perceptions around travel insurance

Beth Godlin, President of Aon Affinity Travel Practice in the US, which provides customised travel insurance and protection programmes to travel companies across the globe, said that it’s inevitable that natural disasters will have some impact on travellers’ desire to visit affected areas. “If certain destinations continue to experience severe weather and natural hazards repeatedly, it’s only reasonable that travellers will think twice before booking a trip to those locales,” she told ITIJ. But, in terms of the effect on travel insurance purchasing trends, more and more people are buying travel insurance for their trips, and this trend looks set to continue, particularly given consumers’ growing awareness of the importance of travel cover in general, which is only amplified by awareness of the growing risk of natural hazards. 

“According to recent data from United States Travel Insurance Association (UStiA), Americans spent almost US$4 billion on travel insurance in 2018, a 40-per-cent increase over 2016,” Godlin highlighted. “Given the current and emerging risks we’re seeing in the marketplace, combined with consumers’ growing understanding of the benefits of travel insurance, we expect this upward trend to continue.”

Damian Lenihan, Executive Director of insurance company Aetna International in the UK, believes it is difficult to predict the impact of natural disasters on travel and tourism, owing to variations in responses to such occurrences. “People react so differently,” he told ITIJ. “While, on one hand, the very idea of risk can significantly affect people’s travel plans; on the other hand, some people won’t let anything change their international movements. And then, of course, there could be people in the UK, for example, that have been caught in natural hazards such as flooding and are, therefore, looking to get away for a while.”

When it comes to travel insurance purchasing trends, Lenihan thinks that the proliferation of natural hazards will have the effect of making consumers more careful with their purchases, as well as helping consumers to view travel insurance as a vital part of their trip. “I think we’ll see people becoming much more savvy in their purchasing. With an increasing amount of choice, and the potential for policies to be split as previously mentioned, there will certainly be more onus on consumers to read the small print,” he told ITIJ. “However, with so much information available about possible destinations and a greater understanding than ever before of the risks of travel, I think we’ll see the conversion of sales increasing as people view travel insurance as a necessity rather than a luxury.”

A resilient industry

Rajeev Shrivastava, CEO of VisitorsCoverage in the US, says he doesn’t see a rise in natural hazards impacting global travel too much due to the peoples’ unwavering desire to experience new places. Like Lenihan, he thinks the impact on travel insurance purchasing trends will be positive. “People may temporarily choose not to visit a particular affected area, but will select alternative and, perhaps, new or different destinations. Travel-related emergencies are going to grow with the increase in global travel, and the innate human desire for people to feel protected will continue to drive demand for the travel insurance market,” he told ITIJ.

there is a hunger to solve a myriad of problems for insuring natural hazards on the part of many insurance innovators

For Cory Sobczyk, Vice-President of Business Development, Arch RoamRight Travel Insurance in the US, the resilience of the travel industry is something that cannot be shaken, even in the face of natural disasters. “The greatest quality of the travel industry is that it is extremely resilient. We have seen time and time again that it is very hard to keep people from travelling,” he told ITIJ. “When it comes to natural hazards, it is not much different. A number of destinations that are not only susceptible to natural disasters but have been affected by them in the recent years continue to see high tourism numbers.” 

Sobczyk, too, sees the impact on travel insurance being a beneficial one, as awareness of risk and the need to be protected grows. “As the risk of natural hazards grows and travellers hear about how travel insurance was able to provide assistance to a fellow traveller, more will see the benefit of purchasing travel insurance from reputable providers,” he said. “In the US, travel insurance uptake rates are not as high as in Europe, for example. We often do see an increase in sales that correlates with a major current event that could affect travel.” And for US-based travel insurance price comparison website Squaremouth, a similar trend of continued travel but growing travel insurance appreciation, particularly of products such as Cancel For Any Reason (CFAR), is being observed. A spokesperson told ITIJ: “Squaremouth anticipates that natural hazards won’t cause people to stop travelling but may influence their choice of destination. With travel in 2020 already affected by multiple natural disasters, we have seen a 20-per-cent increase in travellers who are upgrading their coverage to include the CFAR benefit. We saw a similar increase in interest for Financial Default coverage last year, after the collapse of WOW Airlines and Thomas Cook. These spikes show that people are still planning to travel but are taking precautions to make sure their concerns are covered.”

A growing desire for CFAR

The increasing number of natural disasters and the Covid-19 pandemic will most likely trigger an increase in the purchase of add-on modules that enhance natural catastrophe cover 

Has the growing incidence of natural hazards necessitated that travel insurance policies evolve? Aon’s Godlin told ITIJ that natural hazards do influence the design of new travel protection programmes. “Natural hazards are certainly a big topic of conversation when we’re designing a travel protection programme for our clients. Last year alone, we saw record-breaking rains and flooding domestically and abroad, a polar vortex that effectively shut down huge sections of the country for days, and wildfires devouring land in places like Australia and the western US. The travel implications of these events, and others, were wide-reaching,” she said. When it comes to what consumers want and need, Godlin has observed that there are specific foci on key areas. “Today, we generally find clients looking very carefully at a few key areas like trip cancellation and trip interruption benefits and what those need to cover. Not all suppliers handle these benefits in the same way, often leaning on things like customer demographics, type of travel and destination to make decisions about coverage. For example, some trip cancellation plans can reimburse costs if travellers are forced to cancel because a hurricane is affecting their destination during their scheduled time of travel. However, others could require that a storm be named, and/or be affecting the specific destination during the time of travel, and not just headed close to the general geographic location,” she told ITIJ.  

A desire for CFAR coverage is also on the rise, she said: “We’ve also seen an increase in demand for CFAR benefits, which give the traveller the ultimate flexibility. It’s the only travel protection benefit that allows a traveller to cancel for any reason at all, and that includes the fear of something happening. Depending on the specific policy, travellers with this type of coverage may receive reimbursement in the form of cash, credits or a percentage of their trip cost in return for deciding to revise their travel agenda or cancel the trip completely.” It makes sense that travellers who want extra peace of mind would spend more to ensure that, should the unexpected occur, they are protected.

VisitorsCoverage’s Shrivastava, too, has noted that the rise in natural hazards has correlated with a growth in demand for specialised products. He explains more about this pattern: “One of the most common natural hazards that affects travellers is hurricanes. In early 2019, three travel insurance companies, including us, introduced specialised cruise insurance that specifically covers travellers for trip cancelation or delay due to hurricanes, one of the most frequent reasons for cancelling or delaying cruises,” he told ITIJ. “Specialised coverage such as cruise insurance also includes high limits for medical air evacuation, typically $1 million, and up to $2 million. Coverage for missed connections, emergency evacuation, and emergency reunion are examples of specialised coverage that travellers benefit from when incidents resulting from extreme weather or natural hazards occur.”

Squaremouth pointed out that travel insurance is constantly evolving in line with occurrences, in order to meet travellers’ needs. “As travel insurance is designed to cover travellers’ main concerns, such as weather, illness or unexpected events, providers have the ability to create new policies, adding in benefits to address customer concerns,” a spokesperson told ITIJ. “While not due to a natural hazard, one example of travel insurance policy evolution is the addition of the Terrorism Benefit after the 9/11 terrorist attack in 2001. Prior to that, terrorism was not typically covered by most standard policies. As terrorism then became a major concern for travellers, providers added coverage for a terrorist attack to standard travel insurance policies.”

This is something that Raquel Recuero, Regional Security Coordinator (APAC), Healix International Ltd also refers to: “A survey conducted by UStiA showed that people are more likely to buy insurance when there are several factors out of their control, such as natural disasters. The UStiA also reported that unexpected events that cause a major number of casualties and significant financial damage, as well as trouble disruption, trigger the purchase of travel insurance,” she told ITIJ. “For instance, it claims that prior to 9/11, only 10 per cent of leisure travellers purchased travel insurance, while today more than 30 per cent of leisure travellers buy it. When asked why, the respondents top three reasons are: peace of mind, protection against the unexpected and concern over losing the financial investment in a trip. The increasing number of natural disasters and the Covid-19 pandemic will most likely trigger an increase in the purchase of add-on modules that enhance natural catastrophe cover or cover higher limits. However, it is expected for insurers to add further exclusions in the policies as the risk increases.”

What will the future of cover look like?

And what of the future of cover for natural hazards? Recuero gives her take: “Traditionally, natural catastrophes and pandemics have been grouped together and, thus, these add-ons have created significant losses for UK insurers offering them in 2020,” she told ITIJ. “What these products will look like next year and beyond is unknown, but what is certain is that travel companies’ ability to comply with, and fund, their current legislative and regulatory obligation to natural catastrophes has been systemically damaged. This inability to refund flight tickets and holidays as a result of large catastrophic events will mean a complete rethink of how these risks are financed. A more balanced and co-ordinated set of protections will be the new normal, where travel companies provide some protection but where consumers will also need to purchase insurance in addition to, or as a replacement for, what travel companies are unwilling/unable to provide under new regulations.”

Recuero further said: “There may also be a realisation that, actually, consumers may not be able to secure full protection anymore and that a return to a situation where consumers retain certain risks to large, catastrophic events may be around the corner; i.e. that ticket/holiday isn’t happening and the money paid is lost due to force majeure or ‘act of God’ clauses. This would be a huge change of direction from today, but it’s hard to forecast how the travel industry will recover from Covid-19 without a rewriting of their contract of sale/boarding obligations.”

As the risk of natural hazards grows and travellers hear about how travel insurance was able to provide assistance to a fellow traveller, more will see the benefit of purchasing travel insurance

Squaremouth is confident that policies will continue to evolve in line with the growing risk of natural hazards. A spokesperson explained more: “If natural disasters continue to impact travel on a widespread level, it would not be unusual for new travel insurance policies on the market to add coverage for those types of events. For example, more providers may decide to include coverage specifically for US Centers for Disease Control (CCD) travel warnings. Then, if the CDC issues a travel warning for a destination due to a natural disaster, travellers can be covered for losses related to the event by that policy.” Shrivastava says that it’s difficult to anticipate what the future of cover will look like, but he sees insurers continuing to innovate to overcome challenges. “The fundamental basis for any insurance benefit is based on data and risk analysis. Unless there is enough data and information available to assess the risk and its impact, it is difficult for any insurance company to introduce or add new benefits in this area,” he told ITIJ. “There is definitely a great desire by both consumer travellers and insurance companies to include or improve coverage benefits for natural hazards. It is difficult to speculate on any timelines of coverage specifics, but one thing is sure – there is a hunger to solve a myriad of problems for insuring natural hazards on the part of many insurance innovators. We will definitely see positive steps in this direction.”

Aetna International’s Lenihan thinks that the future will bring clarity: “I would anticipate a very clear and precise delineation between what constitutes a ‘Natural Hazard’ and what constitutes an ‘Act of God’, leading to greater clarity in policies about what is and isn’t covered,” he told ITIJ. “In order to keep costs lower for consumers, we may well see policies being split so that people have one option that covers travel incidentals such as loss of passports or stolen documents, and another that covers a broader ranges of items, including natural disasters.”

Godlin, too, sees policies evolving, with particular emphasis on CFAR benefits. “Over time, travel insurance has evolved coverage to cover as many of the situations as possible, given the ability to underwrite and price for them. Including coverage for wildfires and hurricanes with limitations is an example of that. In addition, the growth and attractiveness of CFAR is also likely to be buoyed by these events, but certainly would also be subject to price increases,” she said.

Travel: A certainty in an uncertain world

Destinations can always regain their popularity – like the wider travel sector, destinations are resilient and the innate desire to experience new places will keep humankind journeying around the globe, while the innate desire to feel protected will ensure travellers continue to purchase travel insurance. In fact, with natural hazards on the rise, travel insurance has never been more important, and travellers’ attention is being drawn to this fact. If anything, the rise in natural hazard risk is having a positive impact on travel insurance purchasing, with add-ons like CFAR particularly in demand, as travellers become more aware of the importance of being covered and learn that anything could happen at any time and travel insurance is a necessity, not a luxury. The travel insurance industry will keep adapting in response to global events, and consumers’ quest for cover that will meet their needs will continue to spur the industry on to provide travellers with the insurance, and reassurance, they need.