The competitive environment of the travel insurance industry, particularly in markets where the use of comparison websites to find policies is common, has resulted in some companies stripping out benefits or minimising cover in certain areas to keep premiums low. Travel insurers are under a lot of financial pressure – making a profit can be a difficult business, with low premiums, medical costs soaring around the world and more claims for cancellation meaning the average value of claims is rising. In order to minimise losses, many travel insurers have made moves to limit cover on certain policy areas – and gadget cover is one of them.
Loss limitationMany insurers would argue that the majority of electronic items people want or expect to have covered under their travel insurance should, in fact, be covered elsewhere: under a home insurance policy, for instance, or under gadget-specific insurance that insures the device at all times. ITIJ spoke to Steve Jones, head of Wales-based Comparison Creator, which has recently launched the UK’s first gadget insurance policy comparison website, about the need for specific policies for such items, rather than relying on standard home or travel insurance. “Home insurance policies,” he explained, “do not normally cover breakdown or loss, and may not cover accidental damage. Theft would only be covered from the home unless it’s an all risks policy.” He added: “If a person is in shared accommodation, there’s more to think about – one person’s gadget claim could lead to higher home insurance premiums for everyone in the household.”
These types of items are typically excluded from coverage because there is great potential for fraudulent claimsAnother concern for insurers was the risk of being subject to fraud – claims trends show, for example, that each time a new iPhone is released, claims for replacements for the old models that have been 'lost/stolen/broken' on holiday start to flood in. Excesses, then, are typically raised for such gadgets on travel insurance policies in an effort to deter fraudsters from making a claim in the first place. The related reimbursement provided by many travel insurance policies has, historically, been limited as well. In the US, according to Justin Tysdal, CEO of Seven Corners, a provider of travel insurance policies, claims for gadgets pose this problem for insurers providing typical trip insurance. Tysdal said: “These types of items are typically excluded from coverage because there is great potential for fraudulent claims. Most trip cancellation polices actually exclude phones, computers and professional or occupational equipment or property.” Research by financial services rating firm Defaqto found not long ago that 36 per cent of single-trip policies in the UK offered £200 or less in insurance cover for a single valuable item – including a mobile phone. Just two per cent of policies analysed offered cover of between £501 and £750. And with many people heading on holiday with a phone worth around £500, this was leaving customers disappointed when the time came to make a claim.
36 per cent of single trip policies in the UK offered £200 or less in insurance for a single valuable itemAllClear Travel Insurance in the UK recently released its own research into the gadgets that people are taking on holiday with them, and asked respondents about their experience with insurance as well. According to the company, 61 per cent of people value the gadgets they take on holiday at over £650, and 33 per cent value them at more than £1,000. Forty-four per cent said they take four or more gadgets with them on holiday. But, with single item cover limits varying between £150 and £200 per item, four out of five people who had made a claim for lost or stolen gadgets while on holiday have had that claim rejected or only received partial payment. An estimated 100 million electronic gadgets are sold every year, according to Jones, and less than two per cent are currently insured on a gadget policy. Jones added: “The stand-alone mobile phone and gadget insurance market has grown from £212 million gross written premium in 2012 to over £1 billion in 2016 and is growing at a rapid pace. We believe this has come about due partly to the regulators starting to force banks and building societies to de-bundle insurance products from bank accounts due to potential mis-selling or not making customers aware they are paying for these services.” Customer expectation surrounding gadget cover in travel insurance is an ongoing problem, with awareness about the limits in policies typically being very low. Research from UK-based organisation Travel Insurance Explained in August 2017, for instance, found that 75 per cent of travellers expect their standard travel insurance to cover them for lost or stolen items such as phones, tablets and cameras, yet almost 59 per cent don’t understand how the reimbursement system works. Around one in five expected to get back a full refund on the price they originally paid for their item, while 27 per cent thought that they would get back the original cost of the gadget, less the excess. Fiona Macrae of Travel Insurance Explained pointed out: “Most insurance companies will not replace an item on a new-for-old basis, especially if the item is more than six months old. Some will ask you to pay your excess and then provide you with a replacement of a similar age and model, whilst other insurers will give you a cash settlement after taking into account the age, any wear and tear and then deducting your excess.”
Plugging the gapWhere there are gaps in coverage, then, these need to be filled. Enter the world of gadget cover add-ons. Many mainstream travel insurance providers are offering to increase the standard cover available to customers during the sales process – at the same time as being offered winter sports cover or a reduced premium in return for a higher payable excess, customers are given the opportunity to add on gadget cover, giving them higher coverage amounts on named gadgets. Or, if a customer already has standard annual insurance, they can go online and buy additional cover specifically for their electronic items. Comparison websites in the UK offer a number of different policies from specialist providers including Love it Cover it, Switched On Insurance, Cover Cloud and more. Justin Tysdal said of cover in the US: “Most travel medical plans provide limited coverage for checked baggage only, which may not be where your ‘gadgets’ are stored. Sometimes gadgets can be added to group travel medical plans for an additional cost on a case-by-case basis by some companies.” World Nomads has a number of underwriters covering travellers from 130 countries, and their spokesman Phil Sylvester said that the development of gadget add-on cover has varied across the world. For US policyholders, this type of insurance first appeared about six years ago, at which time the company’s retail plans specifically added this coverage, as well as offering it as an upgrade to exisiting plans. And it was popular. “Significantly, more than half of all baggage claims involve a gadget of some sort,” said Sylvester. For customers with World Nomads policies based in the UK and Ireland, gadget cover first appeared about 15 years ago, although there has been significant growth in competition over the last five to 10 years, corresponding with the increase in the number and value of gadgets that people are taking away with them. Gadget cover is popular with customers in this region too, with Sylvester saying that, generally, it is a profitable segment of the insurance policy.
An estimated 100 million electronic gadgets are sold every yearAlpha Travel Insurance in the UK introduced its gadget cover add-on in 2015; on average, according to a spokesman, around 18 per cent of customers add the insurance onto their traditional travel policy. AllClear Travel Insurance began selling gadget cover add-ons to its standard travel insurance in December 2016, so it’s relatively early days for the company. According to a spokesperson, however, in the most recent quarter (written in August 2017), it is selling gadget cover with around seven per cent of its policies. Asked why the company thinks that it needed to introduce the add-on insurance, a spokesperson said: “As a specialist medical travel insurance provider, the benefits within our policies are weighted and rated towards the medical expenses aspects. Baggage and valuables benefit levels, while included, are not the main reason people buy our insurance. However, given the huge increase in the use of portable electronic devices or gadgets – smartphones, tablets, Kindles, laptops – it was identified that the single item cover level within the baggage cover was relatively low. Rather than a disproportionate increase in rates to accommodate an increase in baggage cover, by opting for a specific add-on product we can offer good levels of cover for a specific need, and get better rates.” As ever, the issue of customer awareness was also raised by AllClear, who said that there is still ‘a great deal of confusion in the marketplace’ regarding the level of insurance cover in place for gadgets on standard travel insurance policies. Does World Nomads see an issue with fraudulent claims on gadgets? For US customers, the company hasn’t generally seen a spike in claims when a new model of phone or tablet is released, but with new versions of electronic items being released all the time, it’s becoming more difficult to notice these. Added to this, said Sylvester, is the fact that new models don’t tend to mean as much now as they used to. Leaps forward are generally smaller, and the changes made by the likes of Apple and Samsung are less marked. It’s fair to say that the approach taken by travel insurance providers around the world varies widely, with some choosing not to take the risk of providing any sort of gadget cover, others offering limited cover, and others offering specific add-on insurance. Elsewhere, dedicated gadget insurers exist purely to provide cover for people's much-loved electronic devices. A land of contrasts indeed. The insurance industry has to adapt to survive, and there is no doubt that more people are going to take more expensive gadgets with them on work and leisure trips – and the policies they take out need to reflect this. Another aspect of this issue, though, has to be about consumer education. If policyholders don’t know that they aren’t covered, then they won’t even think they need the additional insurance. So making it extra clear at the point of sale that a lost/damaged iPhone claim won’t mean a brand new one being delivered within a few days is essential. As with everything in travel insurance, the variety of approaches taken by insurers means that each one has to take responsibility to highlight its limitations and exclusions, while also offering a solution to the problem. ⬛