The coronavirus pandemic is sparking changes in the travel insurance industry, with many insurers looking to introduce policies with coverage to address Covid-19 trip interruptions or cancellations.
Travel insurers have faced backlash from consumers who had unsuccessfully filed claims for policies bought prior to the pandemic whose trips were disrupted by the outbreak. But there is still a belief -- and some evidence -- that, ultimately, the pandemic will increase insurance purchases by traveling Americans in the future.
"There are just so many things that can screw things up that I think it shines a light on insurance in general and particularly in travel," said Jason Schreier, CEO of April Travel Protection. "My expectation is that it's going to [lead to] a huge uptick in travel insurance."
Like many travel companies, most insurers were coming off a very strong year when the pandemic hit, said Stan Sandberg, co-founder of the insurance comparison website TravelInsurance.com. In the face of a pandemic, they were forced to be flexible.
Some insurers, he said, refunded premiums for travelers who received money back from suppliers and hadn't filed a claim. Other insurers issued vouchers for future travel.
And still others offered prorated refunds, Schreier said, as the most expensive part of travel insurance is the trip cancellation portion, which takes effect the day after a policy is purchased but whose payout diminishes over time.
In many cases, that led to complaints. It's understandable, he said, but unavoidable.
"It's tough having to tell some clients the only thing I can offer you is a credit," he said.
Adding to the list of consumer pain points: Many travel insurance policies specifically exclude pandemic- or epidemic-related coverage.
That was the case at Allianz, said Daniel Durazo, director of marketing and communications. But the insurer moved quickly to put in temporary exceptions that remain in place today. Clients who contracted the virus before travel could cancel their trip and still be covered. If they became ill on a trip, they could make use of trip interruption benefits as well as emergency medical and emergency transportation benefits. Additionally, Allianz reimbursed premiums if a supplier canceled a client's trip.
Sandberg said TravelInsurance.com has seen some new policies that are "more pandemic-friendly," with no exclusions for pandemics and epidemics. Cancel for any reason (CFAR) insurance, typically only offered as an add-on for premium plans, has been offered by some as an upgrade across their entire range of travel policies.
Additionally, Sandberg said, some CFAR plans have been introduced that reimburse travelers up to 50% if they cancel their trip. Typically, most CFAR plans reimburse around 75% of costs, but the lower price point for a 50% reimbursement has been attractive to some travelers.
April Travel Insurance introduced its Pandemic Plus Plan in August. It does not have an exclusion for pandemics. Schreier said April was able to work with an underwriter to bring that product to market, and believes others will do the same.
Insurance products tend to come to market slowly because they need to be approved by regulatory authorities in all 50 states, but even more pandemic-friendly policies are expected on the horizon.
"You can be sure that, in a year from now, as the carriers cycle through new product introductions and updates, you're going to see more plans that incorporate or address some of the pain points that we experienced with this round of Covid and the shutdown," Sandberg said.
Allianz plans to refresh the products it offered through retail travel agents in the first quarter of 2021.
"You'll see some changes to our products that will address travelers' concerns about pandemics and, I think, make them more comfortable to book travel," Durazo said. "We think they're going to be very well received by the travel agent community."
Schreier said he believes new policies will focus on the types of travel that's increasing in popularity in the U.S., with coverages specifically for road trips, domestic travel, pet insurance and vacation rentals.
He also said that while some are shying away from offering CFAR insurance in the short term, everyone will offer the option in the future. Right now, April is experiencing "a record level of uptake on that upgrade." Insurers could even start to offer CFAR in different ways, perhaps by bundling the less commonly offered interrupt for any reason benefit with CFAR.
Though booking volumes overall are depressed, there is some evidence U.S. travelers who are taking trips are now more likely to purchase travel insurance. Durazo said that, for those who are booking trips through Allianz's partners, the insurer is seeing acceptance rates 10% to 15% higher than it had prepandemic.
"I think that's a good indication that the value proposition of travel insurance is being communicated to our partners and to consumers, and that people are purchasing it to protect themselves from unforeseen things that may come up that are covered by their policy," he said.
While travel insurance tends to be a much more ubiquitous product for travelers to purchase in markets outside the U.S., awareness around travel insurance has been steadily growing in the domestic market in recent years, he said, and he expects that to continue.
"I strongly believe that once the travel world opens again, people will be much more likely to buy travel insurance," he continued. "I think the interest is going to be there. I think people recognize there are a ton of benefits that can provide huge value in a world where we're facing these kinds of perils."