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Our last article was an in-depth explanation on how to vet insurance companies. Choosing the best insurance company boils down to a handful of considerations, but the main factor in choosing the right company for your unique needs is research. There is a bevy of easily accessible information available on the internet and you can use this information to make your decision simpler. Similar to the sentiment expressed in our ‘How to Judge “Good” Coverage From “Bad” Coverage: Beyond the Quote’ article, the measure of an insurance policy is not to be found in the monthly premium alone. Although budget is a major consideration when choosing a policy, when choosing a company, you’ll want to take into account: reviews, complaints, ratings (which are informed in part by financial strength), and more. We left no stone uncovered in our guide to vetting insurance companies, because that’s what we do. As a full service, independent insurance agency, we only work with reputable insurance companies to provide you with the highest levels of customer service. What good is an insurance company who doesn’t show up promptly and effectively during your time of need? Before signing an agreement with a new insurance company, give our last article a quick read!
The pandemic took a sizable toll on a great number of industries. Supply chains are still reeling. The hospitality industry may never return to its former state. In the same vein, travel insurance has suffered in its own way. Traditionally, travel insurance has existed to provide coverage for the costs associated with traveling. On a small scale, paying a fee to insure the contents of your bag—should your luggage be lost during transit—is a form of travel insurance. Likewise, insuring the cost of your airplane tickets—should you have to cancel your trip for some unforeseen reason—is another common form of travel insurance. However, do not be mistaken. There is and has been an entire industry dedicated to insuring against potential losses incurred through travelling. Today, we’re discussing how the pandemic has affected the travel insurance industry and how these changes, ultimately, affect you. New packages are being offered to offset the risk of COVID-related cancellations and we’ll discuss those in more detail towards the end of the article. If you’re planning to travel in 2022 and want to be protected, this article is definitely for you!
How the Pandemic Affected Travel Insurance
The informal kinds of travel insurance mentioned above (i.e. bag protection, ticket refunds) aren’t exactly travel insurance. For example, say you booked a seven-day trip in Italy. You’d have checked multiple bags, bought round-trip tickets, booked seven nights at a hotel, scheduled excursions, and otherwise shelled out a fair share of money. Now, let’s say you booked this trip for the end of March 2020. Well, since the borders of both the United States and Italy have closed, it’s safe to say you aren’t going to Italy. Now, the question is: How much money are you going to be able to recoup? While you may be able to be refunded the price of your tickets and even your bags, chances are between 40% to 60% of everything else you spent is forfeit. Now, ordinarily, this is where travel insurance would come in.
However, most travel insurance companies began including exclusions for COVID-19 related losses in January of 2020. This is when the coronavirus became what’s called a “known event,” or a risk which could cause a large number of claims in a large number of places at once. As we explained in our ‘Insurance Policy Clauses You Need to Watch Out For’ article, insurers are well within their rights to add exclusions to the insurance agreement. That’s why it’s of the utmost importance to carefully read any agreement before signing. Now, where does this exclusion leave people who have lost money on canceled trips?
About 48% of Americans canceled their summer plans during the first year of the pandemic and, among these, nearly half lost at least $800 on nonrefundable costs. The pandemic shook up the travel world. As airlines struggled (or outright refused) to provide refunds for flights, the leisure and hospitality industries struggled to continue operations with almost no revenue. Amidst this chaos, consumers actually came away with a greater appreciation for travel insurance, with 40% of consumers (surveyed by ValuePenguin) saying they are more likely to purchase travel insurance in the future because of the coronavirus.
Now, travel insurance already had conditions in place which limited liability when “viral eruptions, epidemics, and/or pandemics” were involved. These clauses were spurred by outbreaks like the Swine flu, Ebola, SARS, and MERS. Similarly, certain travel insurance policies exclude coverage when losses can be attributed to an insured’s “fear of travel.” Which means—if an insurance company did cover pandemic-related losses—in the event you decided to cancel your own trip for safety reasons, they could not be liable to pay out any claim. You might be asking yourself, what good is travel insurance which does not cover the number one cause of canceled trips?
Travel Insurance’s Response to the Pandemic
There are two types of standard trip insurance. The first is known as “cancel for any reason” coverage (CFAR). As the name suggests, this type of policy allows the insured to cancel for almost any reason (with select exclusions and contingencies in effect). This is an expensive form of travel insurance, most often added onto an existing policy as an upgrade. Due to CFAR’s expensiveness, it’ll only account for up to 75% of the total cost of the trip. The most common exclusions for a CFAR policy are:
- Known, foreseeable, intended, or expected losses;
- Pre-existing medical conditions (unless waived);
- Intentional self-harm and attempted/successful suicide;
- Mental, nervous, or psychological disorder;
- Alcohol and/or drug abuse;
- Participating in or training for a professional or amateur sporting competition;
- Participating in extreme, high risk sports and activities (e.; skydiving, bungee jumping, hang gliding, free climbing, personal fighting sports, etc.);
- Criminal acts (often limited to felonies);
- Air, water, or other pollution;
- Nuclear reaction, radiation, or radioactive contamination;
- War, riot, or civil insurrection;
- Public authority travel prohibitions; and
- Travel supplier’s complete cessation of operations.
Now, ordinarily, you might add “coronavirus” as a named peril on a CFAR policy and pay an increased premium. However, since the pandemic, travel insurance agencies have responded with their own packages. Plans are aptly marketed with taglines like “policies have now been upgraded to include coverage for COVID-19, including medical coverage, trip cancellation, trip interruption and even quarantine coverage.” Travel insurance agencies have had to respond to the most pressing fears of consumers, which do not stop with simply canceled plans but extend into much darker territory. Fifty-five percent of consumers said they were less likely to take a cruise once the pandemic was over; along with 52% of consumers who said they were now fearful of overseas travel. We can assume this is due in part to media coverage of travellers stuck on cruise ships, or in hotels, for weeks. Isolated. Quarantined. Consumers must contend with the possibility of becoming sick in a foreign country and being unable to return home for weeks. Travel insurance agencies needed to assuage these fears and, with their updated plans, they’ve made an attempt.
Consumers also seek flexibility, as opening and closing borders make for tenuous travel plans. As always, we recommend reading the fine print of any insurance agreement before signing, in order to understand the full ramifications of your policy. Or, work with an experienced insurance agency, which will sift through policy clauses and prioritize your interests for you.
At Abri Insurance, we prioritize the needs of our clients, foremost, and work diligently to find the policies and companies which will do the same. Whatever type of insurance you’re searching for, at whatever price point, we’ve got you covered! You can request an initial quote through our website. Let’s get to saving! We look forward to hearing from you. Until next time, thank you for reading!