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Travel Insurance

Last Updated 10/30/18

Issue: Travel insurance is a type of insurance for risk associated with traveling such as loss of luggage, trip cancellation and delays. The popularity of travel insurance is increasing. According to the U.S. Travel Insurance Association (UStiA), in 2016 consumers spent approximately $2.8 billion on various types of travel insurance products, an increase of 19.1% from 2014. Heightened uncertainty about global events such as terrorism or natural disasters may play a part in this rise.

Background: Travel insurance gives consumers peace of mind when booking a trip that they will be reimbursed for part of or all their expenses should an undesirable event occur which prompts cancellation or interruption of the trip. Policies are generally good for U.S. and international travel and usually cost between 4-8% of the total trip price.

The main types of travel insurance include:

  • Trip Cancellation/Interruption/Delay insurance reimburses all pre-paid and non-refundable travel expenses if an individual is prevented from taking all or part of their trip. These policies may reimburse the traveler for part of the vacation should they become seriously ill or injured during the trip or if a flight is delayed, requiring an overnight stay in a hotel. This is the most popular type of travel insurance purchased; trip cancellation/interruption policies comprise 87% of travel protection plans purchased in 2016, according to the UStiA.
  • Baggage Loss/Delay or personal effects insurance is considered secondary coverage and covers the traveler’s lost, stolen, or damaged baggage and personal items. While consumers may have some coverage via homeowner’s policies or credit card companies, baggage loss policies can offer additional protection for coverage gaps.
  • Travel Medical insurance offers secondary health and accident insurance in case of illness or injury while traveling as most standard health insurance plans and Medicare likely will not provide coverage abroad. Additionally, a number of countries, including most of the E.U., may require proof of medical insurance in order to receive a visa.
  • Medical Evacuation insurance covers costs related to medical emergency transport to licensed medical facilities. Most U.S. health insurance companies will not pay for repatriation or transport to the nearest appropriate medical facility when overseas. Medical evacuation insurance accounts for about 7.8% of travel insurance plans sold, according to the UStiA.
  • Cancel For Any Reason: Cancel for any reason (CFAR) coverage augments trip cancellation insurance by allowing the insured to cancel their trip and receive a partial refund (50%-75% of the total price) for any reason not covered in the original trip cancellation plan. CFARs offer more flexibility than trip cancellation insurance alone. Usually, certain criteria need to be met to qualify for coverage such as purchasing the policy within a specified time frame, insuring the entire full cost of the trip, and adhering to cancellation restrictions (CFARs typically only allow the traveler to cancel their trip 48 hours or more before the departure date).

Policy Exclusions
As with any insurance policy, it is good practice to check not only what is included, but what conditions are excluded from the policy, as well. Although every policy is different, some of the most common travel policy exclusions are:

  • Pre-existing health conditions
  • Civil and political unrest at the traveler’s destination
  • Pregnancy and childbirth
  • Coverage for those engaging in risky activities such as bungee jumping, backcountry skiing, snowboarding, etc.

Non-Insurance Coverage
Travel insurance products are frequently bundled together with non-insurance products and sold as a package. Even though products and services may be bundled together, only the insurance products have the oversight of state insurance departments. Two of the most common non-insurance travel products are cancellation fee waivers and travel assistance services. Cancellation fee waivers provide coverage for fees that may be incurred when cancelling travel plans. Travel assistance services provide things like translation assistance, referrals to medical services, and assistance with lost luggage or travel documentation.

Status: In November 2015, the U.S. Travel Insurance Association and the Tourism and Travel Industry Consumer Coalition raised concerns regarding lack of specificity and consistent application of regulation of the travel insurance industry to the Property and Casualty (C) Committee. This prompted the committee to appoint a Travel Insurance (C) Working Group in 2016 to consider development of a model law or guideline to establish appropriate regulatory standards for the travel and tourism insurance industry. Prior to the National Summer Meeting in 2017, the Executive (EX) Committee voted to proceed with the development of a model law. During the year, the Working Group drafted the model law using the National Conference of Insurance Legislators (NCOIL) Travel Insurance Model Act as a starting point. On June 13, 2018 the Working Group adopted the Travel Insurance Model Act. This model law defines regulatory structure related to travel insurance and covers market regulation, premium tax, rate regulation, and enforcement. The Property and Casualty Insurance Committee approved the model law on August 6, 2018 at the Summer National Meeting in Boston. It will be considered by the full NAIC membership during the Fall National Meeting in San Francisco in November 2018.