Exploring the complexities of trip cancellation coverage
Insurance sector experts share insights with Alysia Cameron-Davies on claim patterns, improving policies, and upcoming market innovations
Holiday excitement can quickly turn to disappointment when unexpected events force cancellations. The financial implications of cancelling a trip can be substantial, emphasising the importance of comprehensive cancellation coverage.
Jenna Hummer, PR Manager at Squaremouth, said that according to their data, “nearly half of the paid claims last year were for trips that were cancelled outright or cut short. This includes claims within the trip cancellation, trip interruption, and cancel for any reason (CFAR) benefits. Specifically, the trip cancellation benefit was the most commonly paid out claim, accounting for 25% of our total paid claims. The highest trip cancellation claim paid was $49,427.92, with an average claim value of $4,854.22 in 2023.”
The current landscape
Insights from Ian Hall, ABTA’s Head of Travel Insurance, shed further light on the landscape, revealing that 30% of the claims they manage are related to cancellation charges.
Luiza Gusmao, Customer Vice President at Cover Genius, highlighted the variability of cancellation rates and payouts across policies, distribution channels, and coverage specifics.
Carl Carter, the Chief Commercial Officer at Blink Parametric, also discussed the changeability of cancellation rates. “Travel insurance cancellation claims can vary in their frequency in filling by a great amount,” he said. “This is because the range of cancellation covers vary greatly from some policies that only cover five or six stated perils, through to the ever-increasing popularity post-pandemic of CFAR coverage, which is often a policy extension.”
Brad Dance, Chief Customer Officer at TuGo, outlined the multifaceted factors influencing cancellation claims. “The frequency of cancellation claims depends on the demographic segment, the type of trip, destination, purpose of travel, etc,” he explained. “They could range anywhere from 1–10% of the trips, with the claim value being directly tied to the trip cost. Trip cancellation coverage purchased through airline websites covering the ticket usually results in a claim value of several hundreds of dollars, while the claim value of typical trip cancellation packages is in the low thousands, and adventure travel claims (heli-skiing, mountaineering, long-distance cruises) can often add up to over $10,000.”
Leading causes of cancellations
The experts unanimously identified illness and medical issues as the primary reason for trip cancellations. “Cancellation for medical reasons is the main cause for cancellation,” confirmed Hall. “This is not just about the health of the policyholder, it also relates to the health of their travel companions, or even non-travelling close relatives.”
Hummer revealed that, among Squaremouth customers, “in 2023, 83% of paid trip-cancellation-related claims came from travellers cancelling their holiday plans due to unforeseen illness, injury, or death of the traveller, a travelling companion, or a non-travelling family member”. In addition, she said: “Other common covered reasons include terrorism, financial default, inclement weather, or a natural disaster.”
Gusmao agreed with Hummer, acknowledging health issues as the primary factor, but also recognising that Cover Genius has seen an increase in cancellation claims attributed to weather events, natural disasters, and regional conflicts. She explained that such claims often demand rapid responses in internal operations to anticipate shifts in
travel cancellations.
Dance underscored Covid-19 as a primary driver of cancellations in recent years. Furthermore, he identified airline-related challenges, such as delays, missed connections, and schedule changes as additional contributing factors.
AJ Steele, the head of Business Development at Faye, pointed out that among customers with CFAR coverage, other common reasons for cancellations include the inability to secure time off work or simply choosing not to proceed with their planned holidays.
The experts unanimously identified illness and medical issues as the primary reason for trip cancellations
Reimbursement and policy limitations
“Trip cancellation insurance typically provides reimbursement for non-refundable travel expenses that are incurred as a result of an insured event,” said Dance. “As with all insurance, payment depends on the benefit description and is subject to certain limits and exclusions.
“Travellers will be expected to go directly to their trip providers (airlines, hotels, cruise ship companies, etc.) to receive any available refund or credit prior to claiming against a cancellation policy,” he continued. “The intent is certainly to make someone whole to the limits of the insurance available when they experience an insurable event; it’s important for travellers to know, however, that some of their trip reimbursement could come from their trip providers in the form of a credit, and not from their insurance.”
Carter elaborated on the potential differences in the reimbursement process across regions, comparing US policies with those in Europe and the UK. He noted that the extent of full reimbursement typically “varies greatly by the travel insurance plan and if it is a US-style trip cancellation policy versus a UK/European comprehensive policy.
“In the US-style trip cancellation policies, there can be a percentage based excess or copay/deductible that needs to be met by the claimant before the insurer makes a payment, whereas UK-style policies often have an excess which can range from nil through to a few hundred pounds, and in some specialist medical policies or senior citizen policies, this excess can be significantly higher.”
Regarding cancellation coverage and limits, he reiterated the discrepancies between policies but underscored that most plans present customers with a range of coverage limits to choose from.
Gusmao explained that cancellation limits typically fall into two categories. “For some,” she said, “only the flight ticket, vacation, and package are covered, whereas a more comprehensive solution can include additional expenses, accommodation, and transportation.”
Hummer highlighted that “while coverage limits vary by policy, most trip cancellation plans can reimburse up to 100% of a traveller’s pre-paid trip costs if they need to cancel their trip for a covered reason”. However, she emphasised that the outcome may differ depending on the unique circumstances of each claim.
Steele agreed with Hummer and explained that, at Faye, “if a customer must cancel their vacation due to covered reasons, they can be reimbursed for up to 100% of non-refundable trip costs, capped at the total estimated trip cost that they shared with us upon purchasing a policy. This can include reimbursements for flights, hotel bookings, tickets, and activities.”
Cancellation benefit limits
Carter provided insights into the value of cancellation limits, stating that the “UK and European-style travel insurance policies typically range in cancellation covered from as low as £500 or £1,000, through to £5,000 or in some cases £10,000 coverage per person. Specialist cruise coverage policies can also provide coverage as high as £50,000 or more in some cases.”
Most trip cancellation plans can reimburse up to 100% of a traveller’s pre-paid trip costs if they need to cancel their trip for a covered reason
Additionally, he said, the typical coverage for airline-cancelled flights generally falls between $250 and $500 per person; however, he stressed this might fluctuate based on the particular plan and traveller’s profile.
Dance informed us that “in Canada, cancellation benefit limits are typically based on the cost of the trip. In terms of maximum limits for trip cancellation coverage, it can range anywhere from $15,000 to $100,000.”
Hummer outlined some of the specific exclusions that may apply to policies. “Every travel insurance company will have their own specific exclusions when it comes to trip cancellation coverage,” she explained. “These exclusions will be explicitly listed in the policy details prior to purchase. The most common cancellation reasons that are not typically covered by trip cancellation policies include foreseeable events known at the time of purchasing a plan, such as an already-announced airline strike or a named storm, pre-existing conditions unless otherwise stated in your policy, self-inflicted injuries, acts of war that occur at your destination, childbirth or felony or other criminal activities.
“Coverage that includes the CFAR add-on will increase the cost of travel insurance by about 40% but allows travellers more flexibility to cancel a trip for reasons that are not otherwise covered by trip cancellation. However, CFAR coverage is typically limited to reimbursement of 50–75% of trip expenses,” she concluded.
Optimising cancellation coverage
The experts explored how insurance companies can optimise the efficiency of their cancellation coverage and identified innovative solutions to address the evolving needs of customers.
“Travel insurers are constantly working to enhance the effectiveness of their cancellation coverage by adopting innovative approaches that prioritise both operational efficiency and customer satisfaction,” said Hummer. “By leveraging data analytics and predictive modelling, insurers are better able to understand customer behaviour and anticipate potential cancellations. By identifying patterns and trends, insurers can tailor their coverage options to meet the specific needs of different customer segments and enhance overall satisfaction.”
Coverage that includes the CFAR add-on will increase the cost of travel insurance by about 40%
Dance emphasised the importance of adapting to changing travel requirements. “Finding solutions to provide coverage for all types of travel helps enhance the customer experience. Trip cancellation and trip interruption coverage works well for ‘cookie-cutter’ trips when the traveller has paid for all travel costs before departure, with scheduled departure and return dates,” he continued. “But more and more, travellers are opting for different types of trips. For example, some travel trends include one-way road trips (driving to destination, then flying home), open-ended flights (with no scheduled return date),
around-the-world travel, and booking additional travel after departure. Because of this, coverage needs to evolve to meet the needs of all types of travel, so that customers can buy one policy that’s tailored to their travel needs.”
Carter noted: “Travelling consumers post-pandemic are now looking much closer at the detail of what is covered under the cancellation section of their policy, whether they are a US, UK, EU or rest-of-world traveller. During the pandemic, many customers were left frustrated with unclear coverage or denial of coverage. Additionally, customers are now expecting enhanced levels of service in the digital age with an expectation of on-demand, parametric, real-time solutions that do not require phone calls, claim forms, receipts or having to wait weeks for a claim to be settled.”
Gusmao also highlighted another innovative method for airlines, which focuses on “flat payouts for flight delays that could hasten claim resolution and help with providing a great customer experience. A flat payout uses transactional data and fully automates the approval of claims, regardless of expenses, without having to submit invoices and expenses.”
Steele agreed that speeding up and facilitating the reimbursement process is key, and pointed out that cancelling a trip can be extremely stressful for customers. “Travel insurance providers need to take the headache out of reimbursements surrounding covered trip cancellations scenarios,” he said. “They should want to quickly and seamlessly pay claims that are for covered reasons. This means moving quickly and efficiently in reviewing documents, communicating with customers swiftly and with empathy, while also making reimbursements easy.
“First and foremost, providers must digitise many archaic processes to enable travellers to easily file claims and be reimbursed,” he continued. “No snail mail, no long wait times, no not being able to reach someone by phone. Second, utilising smart artificial intelligence (AI) tools for super-speedy document verification will only enhance the operational efficiency of reimbursements related to trip cancellation claims, and result in happy customers who are serviced faster than expected.”
Dance addressed the challenge of ambiguity surrounding certain policy exclusions, such as determining whether a situation was known or unknown at the time the customer purchased the policy. “Finding solutions for identifying when a circumstance is known should always be considered to ensure customer satisfaction,” he said. “This is a common exclusion in trip cancellation/interruption policies, but it can be very subjective. Trip cancellation is designed to cover unexpected losses, and the intent is not to cover situations that are already happening that would naturally cause a traveller to cancel. However, many situations are grey areas. For example, there may be a possibility that a forest fire may spread to a travel destination, but it’s not a guarantee. Should insurance companies be taking on that risk? When does a circumstance become ‘known’?
By leveraging data analytics and predictive modelling, insurers are better able to understand customer behaviour and anticipate potential cancellations
“In addition,” he said, “finding solutions for providing coverage when a traveller needs to cancel their trip due to the health of another person who is not insured on their policy (when listed in as a covered risk in their policy, i.e. a family member, travelling companion, caregiver, etc.), is another area to consider. While certain exclusions need verification, such as pre-existing conditions that don’t apply, it can be an intrusive experience getting consent to access medical records. For example, if the traveller cancels their trip because their grandmother is sick, this is a covered risk, but we still need to verify that the grandmother was not sick at the time the trip was booked or when insurance was purchased.
“While we need to have measures in place to ensure customers aren’t ‘buying claims’ (i.e. purchasing coverage only when they know they intend to cancel), many travellers don’t necessarily know if their family members have medical conditions and, in these situations, it does feel fair to cover their cancellation costs. In addition, many travellers don’t feel comfortable asking their family members to share their medical history. It’s a double-edged sword – on one hand, we have covered risks for health conditions of non-insureds, but on the other hand, we still need to verify whether they have any pre-existing conditions, or if other exclusions may apply,” he concluded.
To finish, Gusmao discussed the importance of adaptability. “Embedded protection in the travel industry is not a new trend but being able to customise the protection specific to a traveller’s immediate needs, with bundled and unbundled solutions, is the way forward.” She summarised: “Offering solutions that are nimble, flexible, and quickly adaptable to changing needs will help cater to today’s and tomorrow’s digital consumer.”
July 2024
Issue
Is cancellation cover is keeping pace with the cost of vacations? We speak to underwriters and insurance experts on whether current insurance policies cover the claims people make if they were to cancel their holiday. We also look at how new technology is facilitating the accuracy of hospital bills.