Travel insurance & the impact of COVID-19

Travel insurance & the impact of COVID-19

By May 11, 2020COVID-19, News

COVID-19 has impacted the travel plans of around one million Australians. Less than half of those travellers would have travel insurance that provides coverage for pandemics.

In Part 1 of this travel insurance series, Finity studies the prevalence of pandemic exclusions in the Australian travel insurance market, and what the impact could have been if this exclusion did not exist. We also look at what insurers’ responses have been to date. 

Part 2 of this series, will consider the impact that changing customer expectations and purchasing behaviours might have, and what the ‘new normal’ might be for the industry in a post-COVID-19 world.

Timeline of events

Australian travel restrictions are at the highest level in history – ‘Do Not Travel’. The travel ban is likely to have long-term impacts on the industry – we’ve already seen a number of airlines facing uncertain futures and most jobs in tourism vanish almost overnight. A recent U.S. media release stated the impact of COVID-19 on the travel industry will be “nine times worse than 9/11” (U.S. Travel Association).

Most insurers started treating COVID-19 as a ‘known-event’ between the 20th January and the 31st January – the ‘known-event’ date varies by insurer and travel destination. Policies sold before the known event date might provide cover for pandemics. Policies sold after this date would generally have no cover due to ‘known-event’ exclusions. Since the Australian government ban, most travel insurers have suspended sales of their international products and some domestic products too.

Insurers’ responses


Through our regular monitoring of online insurance premiums via Market Finesse we have been tracking which insurers have embargos in place relating to COVID-19. Some insurers were quicker to react than others, but all brands that we monitor have now made adjustments to their website informing customers of restrictions on buying travel insurance. Most insurers implemented these changes between the 18th March and the 27th March.

Insurers’ approach to customer communication and quoting can be split into three main types:

We expect these various strategies to evolve as travel restrictions start to relax and Australians begin travelling again (more on this in Part 2 of our e-update).

Clarifying product offerings and PDS wordings

Based on our monthly monitoring of the various PDS’ of over 50 insurance brands in the market, 15 brands issued a new PDS into the market in March. This is 5 times higher than the number in any ‘typical’ month.

Latest PDS issue date

Most of the brands that issued new PDS’ had changes that related to clarifying wordings around pandemic exclusions, such as:

  • Explicitly mentioning that any claim relating to the COVID-19 virus (or mutation/variation thereof) would not be covered
  • Altered wording for claims when travel occurs during ‘Do Not Travel’ restrictions or travel warnings from other government websites (with some insurers stating specific government websites).

We are seeking to update our Product Coverage offering in Market Finesse to capture the range of wordings regarding epidemic and pandemic exclusions.

Price changes

While we have observed some price changes in the first few months of 2020, we suspect most of these related to planned changes that were in insurers’ pipelines before the full impact of COVID-19 was realised. This conclusion is based on the fact that:

  • There was no general consensus in the direction of movements – some insurers made increases, others decreases
  • Changes did not seem to be targeted at specific destinations (e.g. Asia) or product benefit components (e.g. Cancellation)
  • The number of changes is not dissimilar to what was observed in the first 3 months of both 2018 and 2019.

Impact of pandemic exclusions

While insurers have moved to tighten policy wording in recent months, prior to COVID-19, most travel insurance policies had general exclusions for pandemics or epidemics. We estimate that over 60% of comprehensive policies sold to customers would not cover cancellation claims related to COVID-19; about a quarter of comprehensive policies would also exclude medical claims arising from the pandemic.

Finity estimates that if there were no pandemic exclusions, the additional cost to the $1.2 billion travel insurance industry for COVID-19 related cancellation claims could be in the order of $150 million to $250 million. Our estimate relates to travel insurance policies purchased before mid to late January when “known-event” exclusions would generally not apply. Our estimate is heavily dependent on a market wide view of travel insurance purchasing behaviours and general application of policy exclusion wording. Our cost estimate could be higher or lower depending on a range of factors including:

  • The application of policy wordings and exclusions
  • The continued response of companies in the travel supply chain (e.g. airlines and hotels) to COVID-19 by way of refunds and travel credits
  • The length and destinations of the Government travel ban.

The question has been raised as to whether pandemics should be included in ‘standard’ products. Customer and regulatory pressures are likely to mean that travel insurers will need to consider the pricing and product responses that would be needed to provide future pandemic coverage in a sustainable way.

This is the first (Part 1) of a series of Finity e-updates on the impact of COVID-19 on the travel insurance market. We endeavour to keep you up-to-date on the travel insurance industry as the pandemic evolves.


To discuss the above article, contact the author: 

Danielle Casamento

Ph +61 2 8252 3325