Brexit – a view from the sharp end of claims

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Insurance

The UK’s seismic decision to leave the European Union (EU) following the referendum on 23 June this year continues to dominate the thoughts of travel insurers as we head towards 2017 and the first stages of the Government’s negotiations, writes Jon Phillips, head of emergency assistance and cost containment teams at Travel Insurance Facilities Group (TIFGroup)

There is much uncertainty about what will happen over the next two years as Britain negotiates its exit and how this will impact on our industry here in the UK. How will changes to passporting rights deter European travel insurers from writing business in the UK? What, if anything, will replace the European Health Insurance Card (EHIC), which entitles Britons to free or reduced-cost access to public healthcare facilities in member countries? How will claims costs be affected if airlines cannot operate freely all over the EU under the Union’s air service agreement?

These questions and many more will become the focus of attention as negotiations proceed. However one certainty was apparent within 24 hours of the result: claims cost would increase dramatically as sterling lost value against major currencies, particularly the US dollar and the Euro.

At the beginning of 2016, insurers were settling invoices from medical facilities and other providers at US$1.47 and €1.34, and these rates varied only slightly up until 23 June. Within weeks of the result these rates had dropped to $1.32 and €1.17 – at one point in October they were down to $1.21 and €1.10.

The net effect of these changes has been felt most keenly on invoices from medical facilities and air ambulance companies billing in US dollars and Euros, these being the largest single claims costs a travel insurer generally pays. A $100,000 bill from a US hospital, settled in January 2016 at around £68,000, would have been paid at over £82,000 at the lowest rate point in October. A €30,000 air ambulance bill would have increased from around £22,300 to over £27,000 in the same period.

Such significant increases in costs – 20 per cent or more – in a relatively short period of time can only mean trouble for insurers who write travel business in the UK. For those who struggled to run profitable books prior to June when the exchange rates were favourable for claims outlay, it is particularly bad news. Some will be looking at an obvious remedy: increasing front-end premium rates in order to plug the gap. However, this raises the spectre of being unable to renew existing business or acquire new business in a notoriously competitive market.

The sterling exchange rates – generally acknowledged as being unnaturally high pre-Brexit anyway – have shown signs of recovery, although few experts seem able to predict what will happen next. The general consensus appears to be that fluctuations will continue in line with ongoing uncertainty and insurers must be prepared.

One reaction could be a shift in travel patterns during 2017. There could be a switch to worldwide destinations where Sterling has fared better, and this could have an impact not only on cancellation claims, but also on claims for medical expenses as the costs worldwide are usually higher than Europe, especially with regards to repatriation.

No mention has been made of the most important people in all this: the paying public. A significant and general increase in travel insurance premiums will hit pockets and may mean more people reduce their policy spend, either not taking out insurance at all or taking out cover that doesn’t adequately meet their needs.

So is it all doom and gloom? That depends – more than ever before – on the facilities available to insurers to control claims costs. It is incumbent on assistance services, claims handlers, cost containment companies and their partners to ensure that greater effort is put into reducing unnecessary claims costs. Whether it’s an overpriced medical bill or an unnecessary air ambulance, we all have a duty – to customers and insurers alike – to work harder than ever before at ensuring insurers pay only what is reasonable and necessary without impacting on the service to the travelling public.