UK travel insurers set for year of payout pain

UK travel insurance claims are set to hit a record high this year because of disruption caused by Covid-19.

The Association of British Insurers expects the industry to pay out at least £275m for coronavirus-related claims, mostly to cover cancellations. The previous record for cancellation payouts was £148m in 2010 when travel was disrupted by the Icelandic volcanic ash cloud.

The forecast comes as the insurance industry comes under fire over its response to the crisis. Businesses forced to close have been told by their insurers that the costs will not be covered by business interruption policies because infectious diseases are usually excluded in the terms and conditions.

Many — but not all — travel insurance policies are designed to cover this sort of disruption.

The industry expects 400,000 claims this year resulting from coronavirus, up from a total of 294,000 in 2010.

Mark Shepherd, head of general insurance policy at the ABI, said: “Along with compensation from sources, such as airlines and credit card providers, travel insurers are helping customers get through these tough times.”

Editor’s note

The Financial Times is making key coronavirus coverage free to read to help everyone stay informed.

Find the latest here.

Big travel insurers such as LV, Aviva and Direct Line have stopped selling new policies or cut back on the terms they offer.

Restrictions on movement have become tighter in recent weeks, leading to more cancellations. Last week Dominic Raab, the foreign secretary, said people should avoid all non-essential travel for the next 30 days.

READ  Hiscox shares hit hard by concerns over rising US claims

The travel insurance market is much smaller than motor and property cover, which together pay out more than £16bn a year. Nevertheless, the spike in claims comes at a difficult time for the industry. Motor insurers, for example, have complained of rising claims but falling premiums.

Shares in insurance companies have dropped as the coronavirus crisis has grown. Admiral has fallen 10 per cent over the past month, while Direct Line is down 22 per cent. Aviva, which also has a big life insurance business, is down by 40 per cent.

Andreas van Embden, an analyst at Peel Hunt, expects claims to rise across the board in the coming months, with the industry under pressure from regulators to be flexible in areas such as home, motor and travel insurance.

“Overall, the FCA [Financial Conduct Authority, Britain’s financial regulator] is guiding the sector towards claims leniency and to stretch the terms and conditions of insurance policies to help the population adapt to the socio-economic impacts of Covid-19,” he wrote in a note to clients on Monday.

Read more about the impact of coronavirus

Subscribers can use myFT to follow the latest ‘coronavirus’ coverage



Please enter your comment!
Please enter your name here