Few industries have been hit harder by coronavirus than travel and, with holidaymakers and business travellers forced to stay at home for much of the past year, demand for travel insurance has unsurprisingly plummeted.
As the pandemic set in, there was much confusion among travellers with insurance policies over who was responsible for paying out when their plans were cancelled or curtailed.
But now the picture is becoming clearer and, ahead of the UK’s borders opening up, insurers have worked hard to make cover levels and exclusions easy to understand.
However, according to Defaqto, there is still a wide variation of cover for people to navigate. Its research this March found that while 73 per cent of the 978 single-trip policies it checked would cover cancellation following a positive COVID test, just 32 per cent would cover it due to self-isolation.
Additionally, only 2 per cent would cover the costs of being quarantined abroad and none offered cover for cancellation due to further lockdowns.
Anna-Marie Duthie, travel insurance expert at Defaqto, explains that most insurers will now cover the costs of medical treatment if you catch COVID on holiday. But she says: “Compared with the start of 2020, the travel industry has already seen a fall of around 15 per cent in the number of travel insurers and policies in the market. It is likely that many of these insurers will not return.
“We have already seen travel premiums increase since the start of the pandemic. Insurers will be pricing to take account of the losses they have suffered, but it is still a competitive market so recouping large losses will be difficult. It is unlikely though that we will see the return of the very cheap travel policies, such as those which existed at the start of 2020.”
Antony Martin, managing director of travel insurance company Insurefor.com, agrees. He says travel insurance policies have already had price rises of around 15 per cent to take account of COVID cover.
“There have been significant income losses due to customers not travelling, but this has not impacted insurance performance, so we do not expect rates to increase much further over the next 12 months,” says Martin.
A travel insurance claim is not the first step
When it comes to travel protection, much is already offered by travel providers in the first instance, and many experts believe they will have to shoulder more risk going forward.
The Association of British Insurers (ABI) says the travel insurance industry has paid out an estimated £152 million since the pandemic began, but explained how travel insurance is not an alternative to any legal obligations on others, citing its main purpose is to provide emergency overseas medical cover.
The ABI says that, where there is policy cover for those forced to cancel their travel plans or who have faced travel disruption due to COVID, it will kick in if refunds are not firstly obtainable from airlines, accommodation providers and tour operators, as well as via section 75 credit card refunds and debit card chargeback claims.
Sarah Brodie, ABI general insurance policy adviser, explains: “Customers should check the terms and conditions as policies sold since COVID-19 was declared a pandemic are likely to contain some exclusions for cancellation cover. Travel insurance is designed and priced to cover unforeseen risks when the policy is taken out. It is important to note that it is the policyholder’s responsibility to meet any border requirements, for example a negative COVID-19 test.
“No insurer seeks to hide behind numerous terms and conditions, and travel insurers will continue to do all they can to ensure policies are as clear and as user friendly as possible to give travellers the reassurance they need.”
Nicky Kelvin at advice website The Points Guy UK also believes this clarity will be paramount. “Small print when it comes to COVID-19 will likely have to become more transparent,” he says. “Comparison sites are already showing which policies have such cover and customers may be choosing policies on this basis, so insurers may have to be more transparent to remain competitive.”
Time for change within the travel insurance industry
Matt Connolly, of Sønr, a market intelligence business that tracks insurance innovation around the world, believes the pandemic should signal a chance for transformation, especially when it comes to making the claims process more seamless with digital technology.
One trend being explored by a number of insurers is parametric insurance, where a customer takes insurance out and if their trip doesn’t happen for some reason, the claim is immediately triggered and money refunded.
Connolly says: “My recommendation to insurers is study the innovation taking place in the market and capitalise on the opportunities out there. If your strategy is to copy what’s already in-market, what you’re actually copying is the artefact of past effort.”
Avi Meir, co-founder and chief executive of business travel management company TravelPerk, believes flexibility must now be the overriding principle. “Thanks to an ever-changing patchwork of regulations and restrictions, a traveller now doesn’t know that their journey won’t be disrupted, delayed or cancelled until their plane takes off,” he says.
“That pervasive uncertainty means traditional insurance policies just don’t cut it; they were designed to cover for rare, one-off disruptive events, not an ever-present need for almost unlimited flexibility.
“Just as travellers have adjusted to the ‘new normal’, providers too need to reassess and adapt their offerings to cater for what travellers now need most: flexibility.”