How travel insurance is impacted by Coronavirus?

Kimberly MaturinoNews

The Coronavirus or COVID-19 has already affected more than 450,000 people and over 20,000 people have died due to it. Though the virus possibly originated in Wuhan, China it has now spread to a staggering 196 other countries across the globe. Even as we speak, a person somewhere is getting infected with this dreaded virus.

Effect on Global Economy:

While the virus has created havoc in the world, its effect has led to complete mayhem on the global economy. 

In fact according to The International Monetary Fund’s Managing Director Kristalina Georgieva the 2020 world growth may fall below  the 2.9 percent rate of the previous year. As more countries are now facing a growing virus threat, there is a corresponding fear of the world going into a recession.

Travel Industry and the COVID-19 virus

While different industries are facing the brunt of the coronavirus, the travel industry has never seen such dire straits since the shock of 9/11 almost two decades ago.

The travel industry provides employment to approximately 1 in10 people. With a revenue earning of about $ 5.7 trillion, it is one of the largest industries in the world. With a sharp drop in both business as well as leisure travel, the travel industry is definitely looking at terrible times.

According to a survey conducted by Global Business Travel Association, almost 50% businesses have either cancelled or postponed their travel plans. To put things in perspective this means an approximate 37% decline in business travel.

Impact of Coronavirus on Travel Insurance Industry

A very important aspect of the travel industry is the travel insurance sector. So what’s the word on the impact of the coronavirus on the world of travel insurance?

Believe it or not, contrary to popular belief the travel insurance industry has seen an upsurge in demand since the outbreak of the coronavirus.

As the uncertainty about the virus and travel plans rises, more and more people are buying travel insurance plans to buy some leverage to high cancellation costs.

GoCompare Travel Insurance has recorded an increase in sales of travel insurance policies by almost 277 percent in the last week and by over 159 percent compared with the same period of the previous year. 

The plans that are selling like hot-cakes are not just short term plans like ‘Travel Tomorrow’ or ‘Weekly Travel’ but also long term plans for three to six months.

Long term plans are gaining popularity rapidly. As air ticket prices and hotel packages are hitting rock bottom prices in the aftermath of the COVID-19, it can be quite enticing for travelers, especially leisure travelers and families to book ahead and bag awesome deals on their favourite destinations. 

A lot of travelers are buying  these holiday packages anticipating a drop in the virus intensity with the advent of summer. And travelers are also buying travel insurance to hedge the risk of the impending threat of the COVID-19. In fact the  travel insurance company Squaremouth has noted almost a 208% increase in people searching for cancellation coverage after the outbreak.

Travelers should act with caution and read the fine print before buying an insurance plan. 

A lot of policy buyers are not aware of the riders involved in a standard travel insurance plan. Most standard insurance plans provide negligible or nil protection against cancellation due to the COVID-19. 

According to travel insurance experts, travel insurance companies consider the coronavirus a foreseeable effect on travel and is not included in most standard plans. 

If you are planning to travel in the next two to three weeks the CFAR or ‘Cancel for Any Reason’ insurance plan is your best bet against cancelling a trip due to absolutely any reason, including the fear of COVID-19. 

Though it can’t protect you against the COVID-19, the CFAR plan is beneficial in protecting you against travel cancellation plans owing to the spread of the virus. 

The CFAR costs approximately 40% to 50% more than a regular standard plan. With the CFAR plan you can cancel up to 48 hours prior to departure. Plus, you will be eligible to earn a reimbursement of almost 75% in case of cancellation. 

Almost 1 of every 8 American has changed their travel plan and more are changing as you read this.

WHAT does This Mean for Insurance Companies?

On one hand, most insurance companies are making hay while the sun shines, but it’s not all hunky dory as it seems. 

As the COVID-19 virus gains strength, insurance companies with high CFAR plan sales stand to lose money on the high number of cancellations that are estimated to take place. Will insurance companies be able to hedge these distant expenses? We don’t know yet. 

There is also an imminent threat of duplicate claims. Think in terms of problems of differentiating between real and fake claims, spending a fortune on expensive lawsuits, and mounting pressure of unnecessary paperwork.

Going forward, predictive technology and data analytics will play an important role in helping insurers create a balance between risk and opportunities.