Will the Travel Insurance Industry Survive Coronavirus?

With New York City and the United States now the epicenter of the global pandemic, memories are fading of early quarantined passengers shuffled to military bases and university hospitals and the days-long disembarkment of the Grand Princess passengers in Oakland, California, that brought new horror to the cruise industry. The travel industry is reeling and will never be the same once it begins its recovery.

No insurance sector has gained greater notoriety in the wake of the coronavirus outbreak than travel insurance. More popular with non-U.S. travelers than American travelers, travel insurance has received extensive media coverage since the outbreak which led to huge spikes in policy sales until flight cancelations and border closures brought the travel industry to a screeching halt.

Before the global shutdown, increased customer service inquiries were from frightened travelers, most of whom had never purchased travel insurance. As media coverage of travel insurance exploded and awareness grew, many of these queries were regarding Cancel for Any Reason (CFAR), a ‘buy up’ coverage and the only type of coverage that allows a traveler to cancel for literally any reason – including fear of travel from the coronavirus.

The travel insurance industry becomes a victim of its own success

Sales of CFAR policies spiked as travelers suddenly saw the value in its ability to recoup up to 70 percent of prepaid expenses – a sizable amount when purchasing five-figure cruises or traveling with a family. Though pricey – the coverage adds about 40 percent to the cost of a standard travel insurance policy – it seemed to be the security blanket that people needed to continue with travel plans as coronavirus made its way out of China.

On March 6, New York Governor Andrew Cuomo issued an executive order allowing CFAR to be sold in his state in light of coronavirus – it was the only state in the U.S. that did not allow sales of this type of coverage because it “is not based upon the happening of a fortuitous event,” per New York state law.

“The travel insurance industry has done such a good job of raising consumer awareness on the importance of travel insurance that in the wake of coronavirus that the industry seems to be a victim of its own success.”

Fast forward to now, over three months into the global pandemic, and the travel insurance industry flipped its own industry circuit breaker with some insurers halting sales of CFAR policies and a growing wave of providers halting sales of all new travel insurance policies.

Once the coronavirus was declared a national emergency and then a global pandemic, the virus went from being an unforeseen, covered peril to a foreseen event and a named peril – it could no longer be covered.

On March 13, industry trade ITIJ reported that most UK providers, and many in Australia and New Zealand, ceased issuing Cancel for Any Reason travel insurance with the U.S. now teetering on a decision. Losses from travel insurance policies issued prior to the coronavirus pandemic are expected to be in the billions, with general liability and business insurance losses expected to be in the trillions.

The fallout reaches across all insurance sectors

A New Orleans restauranteur is in litigation with Lloyd’s of London seeking business interruption relief, claiming that because the coronavirus stays active on hard surfaces for up to 28 days it constitutes a direct physical loss to its business. As reported in Business Insurance, the case also involves civil authority shutdowns and will be the first of many as business owners across the globe seek to salvage and rebuild their operations in the wake of the pandemic.

Many of the larger insurance entities looking at massive payouts sell other types of coverage like life insurance and commercial policies. Travel insurance doesn’t generate monthly revenue and it may be only a very small part of their portfolios – it won’t be a surprise if these companies drop travel insurance altogether if the spread of the virus is not halted soon.

5 Predictions: Coronavirus’ Impact on the Travel Industry

  • The airline industry will survive with its $60 billion bailout
  • The cruise industry will take years to recover from its early missteps and public fear
  • American travelers will no longer venture abroad without travel insurance coverage
  • Many global insurance providers will stop selling travel insurance altogether
  • Healthcare systems across the globe will be extremely compromised, some will collapse – expect mandatory travel insurance to be implemented across the globe

Airlines and cruise lines

The U.S. passed a historic $2 trillion USD stimulus package with airlines receiving $60 billion in relief. The airlines will recover long before the cruise industry begins to pick up the pieces, civil lawsuits have already been filed by cruise passengers with many more are expected. The cruise industry was at the front end of the coronavirus disaster with the Diamond Princess debacle in Japan receiving world-wide coverage and inciting terror in travelers.

In response to the explosive popularity of cruises, specialized travel cruise insurance became available to travelers early last year, my company included. In the wake of the cruise industry’s visible missteps, underwriters will likely announce that they will no longer provide any cruise-related travel insurance until the damage and payouts from coronavirus can be assessed and analyzed.

Travelers will be reluctant to book cruises – especially windowless cabins that have no access to fresh air. This will primarily affect small businesses in the industry like independent travel agents who sell travel insurance, cruises, and tours. They’ll be filing general liability claims and many won’t survive the pandemic’s fallout.

This is the gravest situation I have experienced in my career, but it is nothing like the economic meltdown of 2008 or 9/11. This is not limited to just the U.S. and certain global markets. The private sector will need to help smaller countries to prevent collapse. The IMF and the World Bank will likely be part of the recovery along with federal reserve banks and private investors.

Mistakes were made and it will take time to determine where the blame lies. Once border closures are lifted, people will need to travel but many more will want to travel. Americans, who purchased travel insurance at a rate lower than the rest of the world, will no longer be blind to the risk they’ve taken in traveling without coverage. With restrictions expected to be lifted by June, pent up demand for summer travel will hopefully await the industry and we can begin to rebuild.

 

Rajeev Shrivastava serves as CEO to global insurtech company VisitorsCoverage Inc, a popular online travel insurance marketplace that allows travelers to acquire and manage their travel insurance online. He has also founded several online technology brands including TMQuotes.com, an innovative technology platform that empowers insurance agents or brokers to sell travel insurance online.