Losing faith in travel insurance

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For at least the last 15 years, I've encouraged our travel agency clients to actively sell travel insurance. I've also advised friends, family and acquaintances that travel insurance should be purchased for all types of travel arrangements other than airline tickets.

Why? Because trip cancellation, baggage loss and/or medical emergencies could be covered for a reasonable cost (an average of between 4% and 8% of the cost of the trip). It not only protects the agency and travelers, but the commissions also provide a revenue stream to the travel agency.       

That was then. This is now. Over the last nine to 12 months, I've received numerous insurance-related inquiries from clients, friends and acquaintances asking how to pursue a claim against a travel insurance carrier after being denied benefits for what appeared to be legitimate claims. In fact, the volume of complaints has resulted in my changing my position with regard to whether travel insurance is needed by most travelers.

I no longer believe travel insurance to be a vacation staple.

The main problem lies in the coverage that travelers believe the insurance provides, when, in fact, it doesn't. Adding to the frustration is the quagmire of how claims are processed. If that were not enough, travel insurance carriers and claims departments (the two are sometimes independent of each other) are sorely lacking in customer service skills, not to mention the knowledge of what is and is not covered.

The following examples illustrate why I no longer always encourage my travel agency clients to actively sell travel insurance.

A couple booked a very expensive, nine-day trip to Italy. Due to flight delays, they missed a connection and lost their first day in Europe. Sadly, their luggage did not catch up with them until the next-to-last day of their trip, and when it did, some of it was wet and several bags were missing.

The travel insurance company reimbursed the couple for out-of-pocket expenses that were incurred due to the missed flight and offered $100 per person for the delayed baggage, the maximum limit on the policy. The couple believed that the baggage-delay portion of their policy would cover at least some part of the clothing they had to buy, so it came as a surprise to discover that they each were only reimbursed $100.

Another recent issue with regard to travel insurance involved an individual who booked a high-end, niche trip to Europe that was ultimately canceled by the tour operator.

The good news? The money for the trip was refunded.

The bad news? The travel insurance carrier refused to refund the premium because the policy indicated that the premium was nonrefundable under any circumstance, even when the operator canceled the trip, leaving nothing for the insurance company to insure.

The carrier also refused to reimburse the traveler for nonrefundable airline tickets and other out-of-pocket expenses until the consumer sued in small-claims court, which resulted in the insurer paying the individual for all out-of-pocket expenses.

Agent's credibility on the line

There is no greater risk to a travel agency than to be selling insurance for which its clients believe there is coverage, only to find out they have paid premiums on coverage that doesn't exist. That jeopardizes the agent's credibility and results in undue expenses for the client.

Unfortunately, this has become a fairly common occurrence. Travel agents are not insurance experts. It is the role of insurance carriers and third-party administrators to make certain the policies are clearly explained and thoroughly understood by both the travel counselor and consumers.

Certainly, if travel clients are elderly, have small children or have existing health conditions, travel insurance is most appropriate. On the other hand, I do not believe it is any longer a good value for many travelers, especially in circumstances where they are covered under their homeowners policies or through insurance offered by credit card issuers. (That said, I still would urge agents to have clients sign a disclaimer stating they accepted or rejected travel insurance. A client could still pursue a claim against the travel agency if travel insurance would have paid for their claim but was never offered by the agency.)

Another alternative is to purchase medical-evacuation coverage from insurance carriers under a yearly policy, which would cover the insureds if they were more than a certain distance from home and required medical evacuation.

While I am certain many of my clients will disagree with my change in position, I believe the travel insurance industry has not kept pace with the common problems travelers frequently encounter. This is particularly true when some portion of the trip involves air, which often disrupts at least some segment of the travel arrangements.

Finally, my advice to consumers who believe they have an unpaid claim against an insurance carrier is very simple: File a complaint with the state insurance commissioner in your home state.

In order to offer travel insurance through your travel agency, the insurance company must be licensed to do business in your state. Most insurance commissioners have a program in place to respond to consumer complaints with regard to insurance coverage.

As a last resort, a claim can be filed against the group administrator and/or the insurance carrier in small-claims court in your home state.

Consultant and travel lawyer Jeffrey R. Miller is a principal of the Miller Travel Group and Lipshultz and Miller P.A. He is the author of numerous travel industry textbooks and publications, including "Legal Forms for Travel Agents" and "Legal Aspects of Travel Agency Operation."

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