Travel insurance in the time of COVID-19

Ray Giblett, Benjamin Kende and Timothy Chan NORTON ROSE FULBRIGHT AUSTRALIA

As travel restrictions remain in place for at least part of Australia’s winter, it has become abundantly clear that any plans Australians may have to enjoy a summer in Italy, Spain or England are quickly fading. Travel insurers are now facing increasing scrutiny from customers and regulators, with new policy sales grinding to a halt. It is an important time for insurers to assess their position and how they can best service their clients moving forward.

In this article, we investigate how the travel industry is approaching cover for epidemics and pandemics, some potential coverage issues, and how travel insurers can use this time to regain consumer trust, following the Financial Services Royal Commission.

Are overseas medical costs covered?

While many travel insurance policies exclude cover for epidemics and pandemics, these exclusions do not always apply to all sections of the policy. Choice, a consumer advocacy group, reports that about half of international travel insurance policies cover medical expenses in a pandemic, whilst less than half of travel insurers cover cancellation as a result of a pandemic or epidemic.¹

Coverage for overseas medical costs may be affected by exclusions relating to epidemics and pandemics. If such an exclusion does not apply, there may be cover available if an insured contracts COVID-19. This coverage will benefit insureds who are stranded overseas and who may also need to rely on automatic extensions to their policy to remain covered until they are able to return home.
Assessment of these claims may not be straightforward, but it is possible that insurers will advance emergency medical costs on a without prejudice basis pending full assessment of the circumstances. Based on the information released so far, COVID-19 is likely to be exacerbated by existing medical conditions such as asthma, diabetes or heart disease.² Coverage under a policy may be restricted if the insured requires treatment for COVID-19 and the condition is exacerbated by or arises from an existing medical condition for which the insured has not obtained additional cover.

Where a policy excludes cover for COVID-19-related medical costs, there is a real risk that customers may need to foot any medical bill themselves unless they are subject to reciprocal government health care arrangements or the foreign government has committed to providing treatment to stranded travelers. The policy may continue to provide cover if the insured requires treatment for a medical condition not related to COVID-19, subject to it not being an existing medical condition at the time of policy inception or a continuation of treatment commenced prior to departing for the trip. Complex coverage questions may arise if the insured suffers superimposed infections and treatment for one of those infections (e.g. COVID-19) may be excluded under the policy by an epidemic exclusion. Travel insurance policies rarely contain allocation clauses.

How are cancellation costs dealt with under travel insurance policies?

Cancellation is the most pressing issue facing travel insurers and their insureds. Travel insurance policies generally provide cover if an insured needs to cancel or reschedule the trip before departure or cancel part of the trip following departure. However, the minimum requirement is usually an unforeseen event that results in the insured being unable to undertake the planned overseas travel to some degree. For example, a policy may require the insured to be unable to travel whilst another policy may require the cancellation to be necessary and unavoidable because of the unforeseen event. Fear of COVID-19, however grave, may not be sufficient to trigger the insuring clause because the insured is able to go on the trip. However, if the insured has another reason for needing to cancel the trip, it is possible there is an alternative proximate cause for the cancellation claim.

Travel insurers have drawn different lines in the sand about when they considered COVID-19 to no longer be an unforeseen event. As the Australian Government issued “do not travel” warnings for some countries before putting in place the worldwide travel ban, the inability to travel to those select countries may have become a foreseeable event at an earlier point in time.

Is the insured unable to travel?

Coverage under some policies may depend on whether the insured is prevented from travelling because of or due to a government restriction. Usually, travel insurers use the Department of Foreign Affairs and Trade website to determine whether a country is subject to a “do not travel” advisory. The website is not a government regulation; however, it is travel advice.

For the first time, the Governor-General has used powers under s 475 of the Biosecurity Act 2015 (Cth) (the Act) to declare a human biosecurity emergency period. The first human biosecurity emergency period began on 18 March 2020 and will expire on 17 June 2020; this can be extended. A declaration has been made by the Health Minister under s 477 of the Act that, during the human biosecurity emergency period, Australian citizens and permanent residents are not permitted to leave the country unless they are exempt.

Accordingly, for the human biosecurity emergency period, insureds may be prevented from travelling due to a government restriction. Unexpected border restrictions implemented overseas by foreign authorities may also prevent insureds from entering their destination country, resulting in an inability to go on their booked trip.

However, for travel planned outside this period, it is uncertain whether cancellation is presently necessary and unavoidable.

Epidemic and pandemic exclusions

Some policies exclude cancellation cover for epidemic and pandemics. These types of exclusions were introduced following the severe acute respiratory syn- drome (SARS) outbreak in 2003 and avian influenza outbreak in 2008. Exclusions may refer to a declared epidemic or pandemic by the WHO or a government authority, to the Act or its predecessor (the Quarantine Act 1908 (Cth)), or specifically to SARS or avian influenza.

Generally speaking, an epidemic is defined as an outbreak of a disease that occurs in a wide geographic location and impacts many people. A pandemic, on the other hand, is an epidemic that has spread throughout a whole country or across continents. On 11 March 2020, the WHO declared COVID-19 to be a pandemic.

For travel insurance policies that provide cover for epidemics and pandemics, particularly as they relate to government restrictions, it is unclear whether the human biosecurity emergency period will remain in force after 17 June 2020. As such, insurers may take the view that customers can still travel on trips booked to take place after 17 June 2020, on the basis that the human biosecurity emergency period may end, allowing the customer to continue their travel as originally planned. The precise wording which triggers the insuring clause for cancellation costs will need to be examined closely

What is the loss?

The calculation of the loss for cancellation claims may be complicated by the differing refund policies of travel, tour and accommodation providers around the world. Due to the unprecedented nature of the COVID-19 pandemic, some providers have waived their “no refund” policies and are allowing refunds on a case by case basis or even automatically. Others are issuing credit vouchers for use toward future travel arrangements.

Accordingly, travel insurers may need to review more than just the refund policies shown on the insured’s booking confirmations. These may have been superseded by more generous refund or credit policies. To minimise claims leakage, it may be necessary to obtain updated information from the travel provider about whether the claimed costs are still not refundable.

While insurers may be able to use their subrogated rights to obtain any refunds due to the insured, it may be logistically simpler to require the insured to obtain this information before the claim is approved and to reduce the possibility of “double dipping” by opportunistic customers.

However, these considerations need to be balanced with the undesirable prospect of a protracted claims assessment, especially if the provider is not responsive to the insured’s requests. Travel insurers may also need to look at the scope of any policy conditions which enable or prevent the insurer to require the insured to obtain this information, including any cooperation and recovery conditions.

Furthermore, if a credit voucher is issued by the provider, it is possible the insured no longer wants to travel or is not able to use it within the voucher’s validity period. In this instance, it is arguable that the insured has still suffered a loss that can be indemnified by the travel insurer if the voucher cannot be used because of reasons beyond the insured’s control. However, it is less clear where the insured has received the voucher but simply does not want to go to a particular destination anymore. Travel insurers may find it difficult to see there is a loss if the travel provider has issued a credit, but the customer says they do not want to use it. Subject to the policy wording, it may be open for the insurer to decline the claim unless the credit is cancelled or assigned to the insurer. The language used in the policy will guide the insurer’s interpretation as to whether the insuring clause is enlivened and whether credits provided by the provider affect the claimable amount.

The rise  and fall of “cancel for any reason” insurance policies

Some travel insurers provide “cancel for any reason” cover. Under a “cancel for any reason” policy (or policy add-on), cover is offered for cancellation expenses arising from travel that is cancelled within a specified time (e.g. 48 hours before departure). “Cancel for any reason policies” provide cover for a fixed percentage of the trip. Following the COVID-19 outbreak, insurers reconsidered “cancel for any reason” policies and ceased selling them.

The way forward

This article has explored some issues facing travel insurers during the COVID-19 pandemic. It is likely customers will be asking their insurers questions about policy coverage, claims and policy cancellations.

Certain insurers, including Suncorp, Allianz, QBE Insurance Group Ltd and other insurers who opt in by notifying the Australian Competition and Consumer Commission, have obtained authorisation to work together by implementing COVID-19 relief measures for consumers and certain small businesses.⁴ Under the pack- age, customers are able to claim a credit or refund for any unused travel insurance premiums without any cancellation or administration fees. However, this is not without its own challenges as divergent approaches to calculating the “unused” premium may be available.

On 27 April 2020, the Australian Securities and Investments Commission (ASIC) wrote to directors of general insurers to outline ASIC’s expectations about general insurers’ responses to COVID-19.⁵ In doing so, ASIC made it clear that they expect “entities to treat customers fairly, avoid adding further financial harm or burden to consumers, and act to maintain the integrity and efficiency of markets”.⁶

More specifically, ASIC noted that general insurers should (among other things):

• stand by their commitments made in the 2020 General Insurance Code of Practice — to provide value, transparency and fairness
• be flexible in dealing with customers’ specific complaints, financial hardship and vulnerabilities — especially, for example, when customers are stuck overseas and seeking extensions of travel insurance coverage
• handle complaints with “utmost good faith and to deal with complaints genuinely, promptly, fairly and consistently”
• not (either intentionally or inadvertently) discourage consumers from making claims — particularly as the treatment of COVID-19 claims may differ between travel insurance insurers and policies
• communicate “proactively, clearly and accurately with consumers about their insurance cover, recognising the rapidly changing situation they are facing”

Following the Financial Services Royal Commission, which concluded in early 2019, now is an opportune time for insurers to regain consumer trust by ensuring they put customers first by acting efficiently, honestly and fairly. This standard is expected to be imposed on insurance claims handling and settlement services in the near future.7 The Insurance Council of Australia is already thinking about how the industry can potentially reintroduce cover for pandemics, perhaps with government support.⁸

• In the meantime, insurers can promote consumer trust by executing a clear, transparent and consistent strategy when dealing with COVID-19 issues. Some ways insurers can do this include:
• providing upfront information about policy cover- age to the extent possible (for example, how and when an epidemic or pandemic exclusion is triggered)
• only asking for relevant information when assessing a claim and
• ensuring staff are ready to address any financial hardship concerns and fast track any advance payments that may be required

Although overseas travel may be restricted in the short term, it will not be forever. While emergency assistance to customers stranded around the world must be a priority, travel insurers should not neglect their large customer base staying at home in Australia. Travel insurers can retain consumer loyalty for the eventual uplift in travel bookings and insurance sales by addressing customer concerns around claims and policy cancellations in line with community expectations.

This article was published in the May 2020 edition of Australian Insurance Law Bulletin.

For access to in-depth commentary and analysis on legal issues arising from COVID-19, please request a complimentary trial of Lexis Advance.

Contact Sales.Enquiries@lexisnexis.com.au or call us on 1800 772 772.

Footnotes

1. J Bird, Does travel insurance cover the COVID-19 coronavirus?, 9 April 2020, www.choice.com.au/travel/money/travel-insurance/ articles/travel-insurance-pandemic.
2. Australian Medical Association, COVID-19 (Coronavirus) is Challenging the Capacity of our Nation, 28 February 2020, www.ama.com.au/article/update-novel-coronavirus-covid-19.
3. World Health Organization, WHO Director-General’s opening remarks at the media briefing on COVID-19, 11 March 2020, www.who.int/dg/speeches/detail/who-director-general-s-opening- remarks-at-the-media-briefing-on-covid-19 11-march-2020.
4. Australian Competition and Consumer Commission “Insurers to offer deferred payments, refunds under small business relief package” media release (2 April 2020) www.accc.gov.au/media- release/insurers-to-offer-deferred-payments-refunds-under-small- business-relief-package.
5. Letter from Emma Curtis to Directors of general insurance companies (27 April 2020) https://download.asic.gov.au/media/ 5573527/letter-to-directors-of-general-insurance-companies-27- 4-20.pdf.
6. Australian Securities and Investments Commission “Details of changes to ASIC regulatory work and priorities in light of COVID-19” media release (14 April 2020) www.asic.gov.au/ about-asic/news-centre/find-a-media-release/2020-releases/20- 086mr-details-of-changes-to-asic-regulatory-work-and-priorities- in-light-of-covid-19/.
7. The Treasury, Making insurance claims handling a financial service, 29 November 2019, www.treasury.gov.au/consultation/ c2019-36687.
8. Insurance News, ICA considers coverage options for next pandemic, 30 April 2020, www.insurancenews.com.au/daily/ ica-considers-coverage-options-for-next-pandemic.