Travel insurance in the post-Covid era

Assessing the impact of the global Covid-19 pandemic

The costs of these events (except for the Spanish flu) were minor compared to Covid-19, but they all should have warned us how fragile our defenses against invisible intruders really were, and how ill-prepared we appeared to be in anticipating, predicting, monitoring, defending and protecting against them in a world where global travel makes such intrusions not only probable, but inevitable. Nonetheless, producers and providers of travel insurance each time stepped up and added new benefits (and exclusions) to their public offerings: adjusted prices, revised cancellation and trip interruption conditions, reconstructed medical underwriting protocols, and generally added pages to already-long policy contracts. 

But, with Covid, it all hit the fan. Within weeks, international travel plummeted by over 90 per cent. Millions of trips were cancelled. Travellers were ordered home. Whole societies shut down. Travel advisors sat at home, doling out rebates for cancelled trips. The toll mounted and the waiting for relief began.

Why were we caught so flat-footed? Why were our national responses so erratic, so disjointed? Where were the stores of masks, personal protective equipment and respirators? Where were the playbooks for handling pandemics? Why were we so unprepared? Why did our politicians feel compelled to flounder about in science, and our scientists in politics?  

Now, with the threat of Covid hopefully stabilising, and with at least some nations forecasting a return 
to some degree of normalcy, will the so-called ‘pent-up demand’ for a resumption of travel materialise? Or will aspiring travellers demand more assurances of safety, more protection from unknown risk – or worse, will they just stay home?

Vaccination certificates as a solution?

What we found in surveying key players in this global travel industry was a broad consensus that Covid-19 may have changed the landscape for all players, possibly for many years to come. And, if and when the anticipated pent-up demand for travel comes around, travellers will expect a good deal more security through their insurance purchases and a far better knowledge of what it is they are buying.  But first must come the breakout, the reopening to travel. And many see the immediate key to that in the ‘vaccine certificate’ or the ‘green passport’. 

Cara Morton, Group Chief Executive Officer of Australia-based Cover-More Group, insisted: “We won’t be able to build momentum (for global travel to return to pre-Covid levels) without some form of vaccine passports/green pass to confirm vaccination. The concept is not new; many jurisdictions have used the World Health Organization’s (WHO’s) Yellow immunisation certificate protocol to ensure travellers have the appropriate protection in place when visiting certain destinations.” Many agree. But as a solution, it remains problematic.

In Israel, where, at the time of writing, 55 per cent of citizens have been fully vaccinated, green passports have become common currency, not only for travel, but for life in general – allowing entry to concerts, restaurants, gyms, hotels, synagogues, businesses, stores, everyday life in the open. Those who have them are first in line. Others must wait. And there are many ‘others’: individuals who can’t be vaccinated for medical reasons, or because they don’t have access, or whose religious beliefs prohibit vaccination, or who honestly believe vaccination is not a safe procedure.

if and when the anticipated pent-up demand for travel comes around, travellers will expect a good deal more security through their insurance purchases and a far better knowledge of what it is they are buying

In the European Union (EU), desperate to cash in on holiday revenues, the Digital Green Certificate – verifying that holders have either been vaccinated or have achieved immunity via recovery from Covid – is due to be rolled out in June. But, given the still glacial pace of vaccinations in many EU countries, there may very well be more ‘have nots’ than ‘haves’ for a good part of this summer season. Thus, WHO posits that since there is a limited availability of vaccines, ‘preferential’ vaccination of travellers could result in inadequate supplies for priority populations considered at high risk of severe Covid-19 disease. WHO also recommends that people who are vaccinated should not be exempt from complying with other travel risk-reduction measures.  

The UK government is also somewhat reluctant to move ahead with a ‘green pass’ solution, at least for this summer, because of ‘discriminatory’ issues. And in North America, both the US and Canada have so far turned their thumbs down to allowing vaccine passports or certificates for widespread use, as they might only lead to inequities in travel access. Fairness and avoidance of discrimination remain major issues here. 

In the US, even political rivals President Joe Biden (Democrat) and Florida Governor Ron DeSantis (Republican) agree that the idea of allowing government or commercial businesses to demand citizens show ‘credentials’ to carry out their daily chores – be it going to concerts, hotels, entering public buildings, or boarding airplanes or cruise ships – is a non-starter. They see it as an invasion of individual liberty, privacy and freedom. And, in America, individual freedom is hot-button territory. 

Digital health passes play a key role in reopening international travel

Nonetheless, many travel professionals see proof of Covid immunity (a green pass or vaccine certificate) as at least a short-term relief for this besieged industry and its customers. Said Francine Abgrall, Group Head of Travel, Europ Assistance: “As a company in the travel business, we are absolutely in favour of any measures that support safe travel, like [the] digital green pass, and we will be working with local governments around the world to make sure our products conform to their requirements. Of course, while safety is our priority, these proposed measures have to be fair and not discriminate against different populations.”

Rachel Temperton, Head of Travel and Tourism for Allianz Partners UK, told ITIJ: “Whilst we are observing a lot of discussion surrounding Covid-19 vaccine passports and implementing them as a means to revive the travel industry, it is difficult to predict whether they will be in place longer term for travel insurers. The adoption of a global green vaccine passport wouldn’t be without its own challenges ... There may be a demand for policies to be amended to cover certain cancellation scenarios if policyholders aren’t vaccinated in time, [and] some countries may reject certain types of vaccination due to reduced effectiveness against particular virus strains. Concerns may [also] arise in relation to discrimination against those who are either unable or choose not to receive a vaccine.” 

Brad Dance, Chief Customer Officer for Canada’s TuGo and past president of the Travel Health Insurance Association, added: “With [proof of] a vaccine, travellers will likely be more welcome and will be safer than without a vaccine. However, until the vaccine is rolled out in its entirety … we won’t know how many people refuse the vaccine [and] this will indicate the size of the issue and the solutions that need to be put in place.”

Short-term pain, long-term gain

If nothing else, the current pandemic has forced the travel insurance industry to look within itself, to more closely examine the needs of its customers and, perhaps, to reconfigure itself to be more flexible in case history repeats itself, as it surely will. It always does.

Said Robin Ingle, CEO of Ingle International, Worldwide Special Risk, Travel Navigator (firms advising global companies on technology development and insurance design): “After an initial surge of activity responding to Covid’s immediate impact, all aspects of the industry (assistance, TPA, claims, underwriting, evacuation and medical repatriations services) were forced to downsize dramatically, some closing their doors permanently, leaving the market in general or in specific regions of the world. 

“Countries around the world are nervous. The pandemic was a shock (when it shouldn’t have been). Pandemics and localised epidemics were always one of the top-10 risks for crisis management and destination resilience. But countries did not handle the pandemic well anywhere. Some were better than others. But the citizens of the world were generally let down.”

Allianz Partners’ Temperton assures ITIJ that once travel opens up again, insurers will need to re-examine their products and align them more closely with consumer requirements, among them cover for pandemics/epidemics. She goes on to predict that ‘some may even add cover for other relevant areas such as travelling against Foreign, Commonwealth and Development Office advice’, or covering cancellations due to quarantine requirements.
Temperton added: “At Allianz Partners, we already cover a number of these risks as standard and do not currently have plans to develop more bespoke products as this may overwhelm customers and cause stress when choosing and buying a travel insurance policy.”

Cover-More’s Cara Morton also asserts that the impact of Covid has re-emphasised that all travellers are individuals with different requirements and needs to protect themselves and their trip investment. She said: “Our aim is to continue to make our products less complex but more personalised … We aim to define a new benchmark for travel insurance customers: free from complex policy wording, enhanced with proactive travel safety alerts and travel assistance.”

“There is no question,” she said, “that the impact of Covid-19 will be long-lasting. Many travellers were mystified and disillusioned by the lack of insurance cover for pandemics, especially for cancellation. Our approach is to simplify policy wording so coverage is more readily understood upfront, and where we can, we are removing confusing customer ‘pain points’ from our products. One example is our mental health coverage in Australia, where we have changed the requirement for a custumer’s condition to be certified by a psychiatrist, given the lead time often required to secure appointments. Now, we will accept a doctor’s or general practitioner’s certification.”

Robin Ingle reinforces the need for strengthening trip cancellation/interruption products, which he sees as alleviating the most serious issues among travellers, particularly in the early stages of travel shutdown. “The travel industry and travellers need this product, especially given the fear created in 2020. But these products will need to be restructured and redesigned to make them viable. Each stakeholder (policyholder, travel provider and insurer) in the provision of healthcare will also need to share the risk – it cannot be solely the insurer’s burden. Handled properly, this can be done.”

More may be better, but does it have to cost more?

One of the more significant supplements to travel insurance plans post-Covid has been the Cancel For Any Reason (CFAR) option, which sharply reduces the ‘exclusions’ that embellish regular trip cancellation policies. Mainly, this has been championed in the US travel insurance market – which is heavily tilted to trip cancellations as opposed to medical cover benefits. CFAR plans have especially surged among cruise customers. They may cost more (as much as 40 per cent) but they have become a priority product given the uncertainties of current travel patterns.

"green passports have become common currency, not only for travel, but for life in general"

Steve Benna, Marketing Manager for US aggregator Squaremouth, tells ITIJ that 27 per cent of all plan purchases from client providers now include the CFAR upgrade. Prior to the pandemic, this figure was around eight per cent. He also notes that domestic trips for summer travel by US citizens are up 48 per cent. 

This is a dramatic reversal for American travellers who, before Covid, bought travel insurance mostly for international travel. It took the pandemic to alert them to the need for covering any trips away from home. And it’s worth noting that though Americans take more trips per person per year (6.70) than any other people except the Finnish (who average 7.50 per person per year), they take only 0.20 per person per year outbound[2]. That’s bottom in a ranking of the world’s top 10. The Finns average 1.70 trips per person per year, outbound.

Benna further notes that countries that have remained open throughout the pandemic have seen a significant surge in travel from Americans: “This includes countries that have never been among our most popular destinations for US travellers.” She says these include the Turks and Caicos Islands, and the US Virgin Islands.

Claims frequency as a cost driver

In anticipation of higher travel insurance costs in the post-Covid era, EA’s Abgrall explains that the pandemic has had significant impact on the travel insurance business model as one of its key drivers of price is claims frequency, which increased during Covid. “Repatriations, for example, became more complex, and searching for specialised facilities equipped to treat Covid patients was time-consuming,” she noted. Nonetheless, she asserts: “While we may see increased prices as a result of these increased costs, we don’t anticipate that peace of mind will become unaffordable for the average family in the wake of the pandemic.”

TuGo’s Brad Dance assures ITIJ that added variables do increase the costs of travel insurance. He also confirmed: “There’s increasing need for specialised, targeted products rather than a one-size-fits-all approach. Add-on features that ensure customised coverage do inevitably mean higher costs.” But, he added: “The demand for travel can also create a competitive environment that drives prices down, including the cost of basic insurance.”

Contraction of the industry

Speaking at the World Travel & Tourism Council’s Annual Global Summit 2021 in Cancun, President and CEO Gloria Guevara emphasised that the Covid pandemic eliminated 62 million jobs in the travel industry worldwide (out of a total of 330 million jobs): “An economic impact 18 times stronger than the impact of the global financial crisis that occurred in 2008,” she stated[3]. 

And that threat of job losses persists. It’s not over, as many existing jobs are currently sustained by government retention or stimulus schemes that won’t last forever. And given the structure of travel insurance, it is only reasonable to believe that most of the losses that have occurred, or are yet to occur, will be among smaller businesses, i.e., independent travel agencies and insurance brokers’ offices, which are more vulnerable to seasonal losses than multinational companies. Absent of government stimulus programmes, their future remains a question: where will they fit into a reconfigured travel insurance landscape?

Dance confirms that the Canadian market has contracted, with larger employers buying up smaller to medium-sized ones, and this will likely continue. “But, there will be significant opportunities coming out of Covid, with all the pent-up demand,” he added, “We expect the market to expand, with a flood of companies trying to gain a foothold and cash in on the opportunity.”

Abgrall also admits that ‘this has certainly been a difficult time for EA partners, [but] the attrition will be short-lived and there are already signs of a surge in travel bookings in the US, which should help revive the industry’.

Temperton further observes that there have been a number of smaller operators going out of business as they did not have the assets to cover all the refunds for the cancellations that occurred: “However, the travel industry as a whole should recover without changing too significantly – although it is impossible to predict exactly how it will be affected moving forward,” she reasoned.

Where the travel industry moves from this point – following the cataclysm that just occurred – is no sure thing. But, in plotting a course for the future, the best first step might well be to look back and, in doing so, get it right. Or, in the more elegant prose of George Santayana, Spanish/American philosopher, poet, novelist and teacher: “Those who cannot remember the past are condemned to repeat it.”