The unsettling truth about travel insurance

Mike Brake /
Mike Brake /
CSA Travel Protection’s Web site promises that its policyholders can “travel with confidence,” so when Norma Tarrow’s flight from New York to San Francisco was canceled after the recent Asiana Airlines crash landing, she felt protected, she says.

But she wasn’t, at least not in the way she thought. When she filed a claim for the $565 she had to pay for a new flight when her trip was interrupted, her insurance company turned her down, saying that the flight cancellation wasn’t a “covered reason” under her policy.

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Her request didn’t seem unreasonable to Tarrow. She was in a wheelchair recovering from surgery when the aviation disaster left her stranded in a JFK terminal. Her airline told her that the soonest it could fly her home was two days later, so she asked her son to book a ticket to San Jose on another airline. If ever there were a time to invoke insurance, it was then.

“They weaseled out of paying a claim,” says Tarrow, a retired college professor who lives in San Mateo, Calif.

A new study by the Washington-based advocacy group National Consumers League (NCL) suggests that the travel insurance industry profits from customers like Tarrow by using misleading language to lure them into buying a policy, including making broad promises of traveling with “peace of mind,” but denying too many claims based on the fine print.

It’s particularly critical of the airline industry, which it claims enjoys a symbiotic relationship with travel insurers, making hefty commissions on the sale of useless policies. “Gouging consumers whose plans change because of a family illness or other unforeseen events is not a good business model,” says Sally Greenberg, NCL’s executive director.

CSA said that it didn’t do that when it denied Tarrow’s claim. In a letter explaining its decision, it said that her $788 policy, which had insured a European riverboat cruise she’d just taken, “only provides benefits if your loss is caused by an event listed in your description of coverage,” which included cancellations resulting from inclement weather, a labor strike or the mechanical breakdown of an aircraft on which the insured is scheduled to travel. “The reason for your loss does not meet the terms of the policy,” a representative noted.

This gap between a traveler’s expectation and the realities of travel insurance is hardly new. But the NCL’s conclusion that the chasm appears to be widening at the expense of the traveler is noteworthy.

The study says that while overall travel insurance sales are rising, surging 46 percent between 2006 and 2012 to $1.9 billion, so are airline change fees. The domestic airline industry collected more than $2.5 billion in cancellation and change fees last year, up 176 percent from 2007, according to the Department of Transportation.

Air travelers are left with two options to avoid a $200 ticket change fee: book a refundable ticket (the cheapest costs 350 percent more on average than the cheapest nonrefundable ticket, according to NCL’s research) or buy travel insurance. These policies are often sold online under high-pressure conditions, at the conclusion of an airline reservation and without adequate notification of the coverage terms, according to NCL. As a result, complaints about denied insurance claims for airline tickets are common, it says.

The US Travel Insurance Association, a trade group for the travel insurance industry, says that some of the report’s findings are flawed. “There’s no correlation between the increase in travel insurance sales and airline change and cancellation fees,” says the association’s spokeswoman, Linda Kundell. “That’s a totally erroneous conclusion.”

The growth in travel insurance sales is linked to stepped-up industry efforts to market its product, increased consumer awareness of the benefits of travel insurance, and a rise in travel spending, according to Kundell. But she didn’t disagree with all the NCL report’s conclusions. She says that the travel insurance industry is always concerned with the way its products are marketed online, such as on airline Web sites. Some airlines, for example, require passengers to accept or decline trip protection before they can book a ticket online, which to travelers often seems like a hard sell.

The NCL is calling for “common sense” reforms, including an industry pledge to market travel insurance in “clear, non-misleading” language. It wants the insurance industry to disclose its claim denial rate. It’s also calling for congressional oversight hearings to review the relationship between rising change and cancellation fees and the aggressive marketing of cancellation insurance.

The organization wants to reform the way airline tickets are sold, too. Rather than charging a flat cancellation fee, as most airlines do, NCL is proposing a tiered fee schedule based on the proximity of your travel date. Flights canceled or changed five to 10 days prior to the departure date should incur no fee, and airline tickets should be transferable.

It’s difficult to argue against any of the NCL’s suggested measures. Consumers would benefit from clearer policy language and from knowing the odds of a claim denial. And unless you’re an airline insider, it’s hard to justify the current fees and fare rules that render most tickets worthless when you try to change them. Even though some industry observers claim that the study doesn’t persuasively connect the dots, the conclusion is hard to avoid: This issue certainly calls for a little congressional attention.

By the way, Tarrow’s appeal didn’t have a happy ending, even after I took up her case. CSA stood by its decision.

“We are very sorry that Ms. Tarrow felt frustrated when her claim was denied,” a company representative told me. “We consider this case closed.”

The lesson? Take your time when you buy travel insurance and make sure that you understand what is — and isn’t — covered. Read the fine print. All of it. If you don’t understand something and have a question, call the insurance company before you buy a policy so that you won’t get stuck with a bill you didn’t expect.

Oh, and don’t believe all the ads about traveling with “peace of mind.” Unfortunately, the reality may leave you unsettled.

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