An in-depth report examines airline travel insurance and concludes often times this small add-on purchase is a sham.
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1. $tuff Happens: Airlines Benefit Handsomely From the
Unexpected and Consumers Fears About It September 23, 2013
2. National Consumers League $tuff Happens 2 Acknowledgments
This report was written by John Breyault, Vice President of Public
Policy, Telecommunications and Fraud for the National Consumers
League. Major assistance was provided by NCL staff, especially
public policy interns Sam Hamer (Yale 14), Robert R.J. Smith (IUP
14) and Heather Yoon (Brandeis 15). About the National Consumers
League The National Consumers League, founded in 1899, is America's
pioneer consumer organization. Our mission is to protect and
promote social and economic justice for consumers and workers in
the United States and abroad. For more information, visit
www.nclnet.org. National Consumers League 1701 K Street, NW Suite
1200 Washington, DC 20006 Phone: (202) 835-3323 Fax: (202) 835-0747
http://www.nclnet.org 2013 National Consumers League. All rights
reserved.
3. National Consumers League $tuff Happens 3 Table of Contents
Introduction
..............................................................................................................................
4 I. Cancellation and Change Fees Have Become Significant Profit
Centers for the Airline Industry
..........................................................................................................
6 II. Refundable Tickets Are Not Affordable for Most Consumers
............................ 7 III. Marketing of Travel Insurance
Online Does Not Give Consumers Adequate Information
......................................................................................................................
10 IV. Complaints Suggest a High Degree of Consumer Confusion and
Anger Regarding Limitations of Travel Insurance
.......................................................... 17 V.
Lack of Regulation of the Travel Insurance Industry at State and
Federal Levels Leaves Consumers Vulnerable
.....................................................................
20 VI. Common-Sense Reforms Should Address the Lack of Consumer
Protections in the Airline Travel Industry
....................................................................................
21 Conclusion
...............................................................................................................................
23
4. National Consumers League $tuff Happens 4 Introduction Life
is full of uncertainties. When it comes to airline travel, this
uncertainty can quickly become costly for consumers. Earlier this
year, cancellation/change fees on the legacy U.S. airlines
increased to $200 per ticket for domestic flights. These fees have
become a growing revenue source for the industry. In 2012, the
industry collected more than $2.5 billion in such fees, an increase
of more than 176% since 2007.1 Many travelers approach buying an
expensive plane ticket with fear and loathing, knowing that if
something unexpected happen, they could lose a large chunk of
money. An unexpected hospital visit, for example, could easily lead
to $800 or more in cancellation or change fees for a family of four
travelling together. As cancellation fees increase, consumers
appear to be increasingly turning to travel insurance as a hedge
against the risk of change fees and the alternative of expensive
refundable tickets. From 2006-2012, sales of travel insurance and
travel assistance products increased by approximately 46% to nearly
$1.9 billion. Trip cancellation/interruption policies -- the type
most often marketed to consumers by airline Web sites and online
travel agencies -- accounted for 94% of travel insurance premiums
in 2012, an increase of more than 22% since 2006. Unfortunately,
the marketing of travel insurance through airline and online travel
agency Web sites too often relies on misleading language and dense
policy descriptions. Consumers often find that coverage they
thought they had purchased to protect them in the event of a
cancellation is denied. Policies are often riddled with exclusions,
including for pre-existing conditions and many other reasons. This
has generated a significant amount of consumer outrage. 1 Bureau of
Transportation Statistics, Schedule P-1.2
5. National Consumers League $tuff Happens 5 To address the
linked issues of onerous cancellation fees, unaffordable refundable
tickets and misleading travel insurance marketing, the National
Consumers League is recommending a series of reforms to protect
consumers. These include: Congressional oversight hearings
examining the windfall that the airline and travel insurance
industries have realized from the startling increase in
cancellation fees, the disparity between refundable and
non-refundable ticket prices and the correlating increase in the
sale of often useless airline flight cancellation insurance; Moving
to a tiered cancellation/change fee pricing model based on the
proximity of the travel date. Flights changed or cancelled more
than 5-10 days in advance of the flight should incur no fee;
Allowing consumers to transfer a ticket to another passenger
without incurring a cancellation/change fee; Requiring travel
insurance issuers to report the loss ratio, i.e. the percentage of
premium claims paid out to customers buying insurance; Requiring
travel insurance policies to be marketed in clear, non-misleading
language; and Eliminating standby fees for travellers who miss a
flight and elect to fly standby the same day because there is
virtually no cost to the airline to fill an empty seat.
6. National Consumers League $tuff Happens 6 I. Cancellation
and Change Fees Have Become Significant Profit Centers for the
Airline Industry The fact that events happen beyond our control
today results in a windfall for the airline industry. According to
the U.S. Department of Transportation, the top 14 domestic airlines
collected more that $2.5 billion in cancellation and change fees in
2012. This represents an increase of more than 176% since 2007,
when the industry reported slightly more than $915 million in such
fees. Source: Bureau of Transportation Statistics, Schedule P-1.2
Some members of the airline industry appear to depend on these
ancillary fees, such as cancellation/change fees, baggage fees,
seat selection fees and other fees to maintain profitability.2 In
addition to the more than $2.5 billion in revenue from 2
Mutzabaugh, Benjamin. Airlines collected record baggage fees in
2012, USA Today. May 15, 2013. Online:
http://www.usatoday.com/story/todayinthesky/2013/05/14/airlines-collected-record-baggage-fees-
in-2012/2158983/ (The airlines took in $159.5 billion in revenue
last year and had expenses of $153.6 billion, according to the
government. That 3.7% profit margin comes entirely from the baggage
and change fees.) 0 500000 1000000 1500000 2000000 2500000 3000000
2007 2008 2009 2010 2011 2012 Year U.S. Airline Cancellation/Change
Fee Revenue - Reaches $2.5 Billion in 2012 Revenue (in millions of
dollars)
7. National Consumers League $tuff Happens 7
cancellation/change fees, the industry collected more than $3.43
billion in baggage fees in 2012 alone.3 Domestic airlines have been
flying with progressively fewer unsold seats. In 2002, the average
load factor for a domestic flight was 70.41%. By 2012, average load
factors reached 83.25%.4 The airline industry claims that higher
change fees are a way to protect against revenue dilution.5
However, given increasing load factors, it seems dubious that the
uncertainty of consumer itineraries is responsible for large blocks
of unsold seats. Indeed, on a full flight, if a consumer has to
change her plans, and informs the airline, that newly available
seat becomes available for sale. Since tickets sold closer to the
departure date are typically priced higher than tickets sold well
in advance, the airline can profit twice over from a cancellation
once from the cancellation/change fee, and again from the
subsequent resale of the same seat. II. Refundable Tickets Are Not
Affordable for Most Consumers Cancellation fees are an unavoidable
fact of air travel for consumers who have a change of plans. One
reason for this is the large disparity in price between traditional
restricted fare tickets and refundable tickets (also known as full
fare or unrestricted tickets). Nonrefundable restricted-fare
tickets comprise the lions share of ticket sales for U.S. air
travelers. Since 1993, restricted fare tickets made up more than
80% of all ticket sales across all fare classes (coach, business,
and first classes combined). 6 3 DOT Bureau of Transportation
Statistics. Baggage Fees by Airline 2012, Online:
http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/subject_areas/airline_information/baggage_
fees/html/2012.html 4 Bureau of Transportation Statistics T-100
Segment data. 5 Elliott, Christopher. Whats Behind All Those
Airline Change Fees? Frommers.com. November 1, 2010. Online:
http://www.frommers.com/articles/7070.html#ixzz2W1mopAIJ 6 Bureau
of Transportation Statistics. Origin and Destination Survey:
DB1BCoupon. (Accessed September 4, 2013) Online:
http://1.usa.gov/150g5tf
8. National Consumers League $tuff Happens 8 Source: Bureau of
Transportation Statistics. Origin and Destination Survey:
DB1BCoupon There appear to have been significant fluctuations in
the sales of refundable unrestricted fare tickets. In 1998,
unrestricted fare tickets made up 19.48% of all ticket sales. Sales
of such tickets gradually decreased until in 2009 when only 5.16%
of tickets sold were refundable. Since 2009, unrestricted ticket
sales have increased progressively. From 2011-2012, for example,
sales of unrestricted-fare tickets more than doubled to 18.62% of
all tickets sold. Whether this is due to consumers increasingly
opting for such tickets in the face of increasing
cancellation/change fees is unclear. However, it appears that there
is at least a correlation between the two market trends. What is
clear is that unrestricted, refundable tickets are significantly
more expensive than restricted, non-refundable tickets. An NCL
analysis of the least expensive refundable and non-refundable fares
available for the top 100 air corridors in the U.S.7 found that on
average, a refundable ticket is 350% more 7 Tomer, Adie and
Puentes, Robert. Expect Delays: An Analysis of Air Travel Trends in
the United States, Metropolitan Policy Program. Brookings
Institution. (October 2009). Appendix 3 Top 100 0.00% 20.00% 40.00%
60.00% 80.00% 100.00% Restricted-Fare Tickets Dominate Airline
Ticket Sales Restricted Tickets (% of total passengers)
Unrestricted Tickets (% of total passengers)
9. National Consumers League $tuff Happens 9 expensive than a
non-refundable ticket.8 Given this price difference, it is not
surprising that refundable tickets make up a comparatively small
percentage of total U.S. ticket sales. The cost is simply
prohibitive for most consumers. Source: National Consumers League
(2013) Corridors, pg. 28-30. Online:
http://www.brookings.edu/~/media/research/files/reports/2009/10/08%20air%20travel%20to
mer%20puentes/1008_air_travel_report.pdf 8 Methodology: NCL
conducted online searches on each of the top 100 U.S. air corridors
as defined by Brookings using one of three online travel search
engines (Priceline.com, Expedia.com and Travelocity.com) as well as
Southwest.com (because Southwest Airlines does not provide its data
to third-party online travel search engines). For each route, two
searches were conducted; one for the lowest restricted fare and a
second for the lowest unrestricted fare. Searches were conducted on
September 5, 2013 for flights on October 7, 2013 (30-day advance
purchase) for one-way coach-class tickets. Where possible, searches
encompassed all airports in a metro area (e.g. WAS airport code for
all Washington, DC airports or NYC for all New York City area
airports). When a search engine did not allow for region-wide
searches, the airport closest the city centers was chosen (e.g. SFO
for San Francisco-area airports, LGA for New York City-area
airports). In several cases, Southwest only serves one airport in a
city (e.g. MDW in Chicago, Islip, NY for the Boston-New York
corridor) so only flights to those airports were chosen. The
percentage difference between the lowest restricted and
unrestricted fare for a particular corridor was then calculated.
The 350% figure is the average of these percentage differences for
the top 100 corridors. 56 20 10 8 6 0 10 20 30 40 50 60 0-249%
250-499% 500-749% 750-1000% >1000% No. of Routes
Non-restricted/Restricted Fare Difference % % Differences Between
Non-Restricted & Restricted Fares on Major U.S. Air Routes
10. National Consumers League $tuff Happens 10 III. Marketing
of Travel Insurance Online Does Not Give Consumers Adequate
Information The trend towards rising cancellation fees has been
widely reported, prompting calls for reform.9 Less well understood,
however, is that growing revenue from travel insurance sales is
also contributing to airline industry bottom lines. This amounts to
a double-whammy on consumers. As cancellation fees have increased,
consumer may feel compelled to buy insurance. In 2012, 148 million
American insured purchased some form of travel insurance or travel
assistance product, spending $1.9 billion on such policies and
services, an increase of more than 46% since 2006.10 Trip
cancellation/interruption policies, the type most often marketed to
consumers by airlines and travel Web sites, accounted for 94% of
travel insurance premiums in 2012, an increase of nearly 22% since
2006.11 0.00%$ 10.00%$ 20.00%$ 30.00%$ 40.00%$ 50.00%$ 60.00%$
70.00%$ 80.00%$ 90.00%$ 100.00%$ $0$ $200$ $400$ $600$ $800$
$1,000$ $1,200$ $1,400$ $1,600$ $1,800$ $2,000$ 2004$ 2006$ 2008$
2010$ 2012$ U.S.$Travel$Insurance$Sales$(in$Millions$$)$
Trip$Cancella8on/Interrup8on$Policies$Becoming$a$Larger$Part$of$Growing$U.S.$Travel$Insurance$Market$
Travel$Insurance$&$Assistance$Products$Annual$Sales$
Tip$CancellaEon/Insurance$Packages$(%$of$total$sales)$ Source: U.S.
Travel Insurance Association, Travel Insurance Market Survey
(2004-2012) 9 See e.g. Trejos, Nancy. Schumer asks airlines to
reverse flight change fees, USA Today. May 20, 2013. Online:
http://www.usatoday.com/story/todayinthesky/2013/05/20/airline-flight-change-
fee-charles-schumer/2326243/ 10 U.S. Travel Insurance Association.
Travel Insurance Market Survey (2004-2012). Online:
http://www.ustia.org/documents/travel-insurance-sales-show-steady-increase-9-12-11.pdf
11 Ibid.
11. National Consumers League $tuff Happens 11 Every airline
Web site that NCL reviewed includes the option to purchase travel
insurance as part of their ticketing checkout process. These
policies are often aggressively marketed to consumers. This should
not be surprising since airlines and travel agencies receive
commissions on the sale of travel insurance policies. Commissions
range from around 10%12 to more than 40%13 of the cost of the
policy. Unfortunately, consumers being offered travel insurance are
often not provided the information necessary to make an informed
buying decision. This is largely due to confusing messaging on
major airline ticketing Web sites where consumers are led to
believe that travel insurance covers more unforeseen circumstances
than it actually does. Research by NCL has shown that potentially
misleading marketing of travel insurance policies is widespread in
the airline industry. Significant issues encountered during the
ticket-buying process on multiple airline Web sites and online
travel agencies included: Use of vague terms such as worry-free,
unforeseen expenses, and and more without adequate disclosure of
significant plan limitations; Reliance on misleading testimonials;
and Requirement of multiple clicks before dense, multi-page policy
limitations information can be found. For example, NCL researchers
reviewing Spirit Airs Web site (www.spirit.com) were offered a
$434.79 ticket price for a coach-class one-way ticket from
Baltimore 12 Saltzman, Dori. Sell trip insurance for peace of mind,
yours & theirs, Travel Market Report. September 12, 2011.
Online:
http://www.travelmarketreport.com/retail?articleID=6300&LP=1
(Commission levels on insurance sales are high typically 20% to 28%
from third party suppliers, and 10% to 12% from travel suppliers.)
13 Travel Professionals International. TPI Investments &
Commissions,
http://www.tpi.ca/associate_investment_commissions.asp
12. National Consumers League $tuff Happens 12 to Los Angeles
(including one carry-on bag) on August 24, 2013. The following
offer was presented during the ticket checkout process: Clicking
through to the Description of Coverage or Show Coverage directs the
prospective ticket-buyer to a nine-page PDF of Spirit Airlines
Description of Coverage for the policy, which is underwritten by
Travel Guard.14 This document lays out the schedule of benefits for
this particular flight and lists important definitions and
exclusions. For example, if the insured flyers spouse or parent
died prior to the trip and the death was linked to a pre-existing
medical condition, the insurer would not be required to pay a claim
under this policy. It is for this reason that the use of the term
worry-free, combined with a relatively low price of coverage ($14,
or approximately 3% increase in total ticket price), is
troublesome. The likely result is that many consumers simply check
the box to purchase insurance without reading and understanding the
policy, thinking they have bought peace of mind. Too often,
consumers learn too late that their reason for cancellation is not
covered and they cant collect on a claim. This problem is not
limited to a single airline. For a one-way flight from Washington,
DC (Reagan National) to Los Angeles on August 24, NCL researchers
were quoted a base fare of $630.80 on Delta Airlines Web site
(www.delta.com). At the end of the checkout process, Delta
presented the following travel insurance offer: 14 Accessed online
(August 23, 2013):
http://www.travelguard.com/spirit/domestic.pdf
13. National Consumers League $tuff Happens 13 The $37.85 cost
of the travel insurance policy, underwritten by Allianz Global
Assistance, represented an approximately 6% increase on the total
cost of the ticket. This offer is again problematic in a number of
ways. First Peace of mind is only a click away, suggests that all a
prospective ticket-buyer must do is click the Yes, Id like to
purchase trip insurance button to receive complete coverage.
Second, after describing four specific benefits of the policy, it
is likely unclear to the typical consumer what Limitations apply
means. Clicking on the Learn More link leads to the following
pop-up window:
14. National Consumers League $tuff Happens 14 The text in this
pop-up window is again promotional in nature, detailing the amounts
of coverage and benefits of the plan, such as concierge and 24-hour
hotline in addition to the monetary benefits and a Satisfaction
Guarantee. The pre- existing medical condition exclusion is noted,
but only in vague terms. To find the full details of the policy,
the ticket-buyer is required to click through a second time on the
terms, conditions and exclusions, link to access a 22-page
Certificate of Insurance document prepared by Allianz Global
Assistance.15 Example of exclusions in travel insurance policies
reviewed by NCL included losses stemming from: Existing medical
conditions affecting the traveller, a travelling companion or a
family member; Pregnancy and childbirth; Scuba diving without a
dive master; Participating in or training for any amateur sporting
competition; Being fired if the termination is the travellers or
the travellers companions fault. These and other exclusions give
carte blanche to insurers to avoid paying out claims. For example,
if a family purchased a travel insurance policy prior to departing
on vacation and their child broke an arm at soccer practice and
couldnt travel, a claim could be denied under the training for any
amateur sporting competition, exclusion. Potentially misleading
marketing of travel insurance also occurs on online travel Web
sites. For example, when NCL researchers attempted to book a
one-way flight for August 24 from Washington, DC (Reagan National)
to Los Angeles through 15 Accessed online (August 23, 2013):
https://www.allianztravelinsurance.com/documents/library/certs/TI_101_08_C_V2.pdf
15. National Consumers League $tuff Happens 15 Expedia for a
U.S. Airways-operated flight, we were quoted a fare of $418.30. At
the end of the checkout process, we were presented with the
following travel insurance offer: Stonebridge Casualty Insurance
Company underwrites the policy. Full details of the policy are
available on the Expedia Cancellation Plan Web site16 and in an
eight-page brochure.17 Multiple instances of the number 100% and
the phrases peace of mind and Dont miss out! encourage consumers to
click the Yes button without fully exploring the significant
limitations on this plan. In addition, text stating No, I dont need
travel protection and understand it isnt available after booking,
suggests that consumers can only purchase travel insurance for the
selected flight during the online checkout process. In fact,
consumers are free to purchase travel insurance policies
independently of the online ticket purchase process from a travel
insurance agent. 16 Accessed online (August 24, 2013):
http://www.expedia.com/daily/promos/travel_protection_plans/flight_cancellation.asp
17 Accessed online (August 24, 2013):
http://media.expedia.com/media/content/expus/graphics/other/insurance/expedia_flight_cancella
tion_plan.pdf
16. National Consumers League $tuff Happens 16 Finally,
travelers booking flights on Alaska Airlines are presented with the
following offer for travel insurance: Note the text, citing a 2012
USA Today article18, which states Travel insurance is peace of mind
and doesnt have to cost a lot. This quote, which was also featured
in a number of other airlines travel insurance offerings, suggests
that USA Today has endorsed travel insurance as a good idea for
consumers. In fact, the text is lifted from a quote by Sandy Wick,
owner of Four Seasons Travel in Indianapolis, Indiana and Kellie
Bishop, chief possibility officer at Travel Leaders/Cosmopolitan
Travel in Charlottesville, Virginia. Given the fact that both Wick
and Bishop are travel agents, and likely receive significant
commissions from the sale of travel insurance policies, they can
hardly be considered disinterested parties. Further, USA Today
itself has in no way endorsed travel insurance as an option for
consumers. NCL researchers reviewed the Web sites of a dozen U.S.
carriers, including the four major domestic airlines as well as
major online travel agencies. This review found that misleading
practices in the marketing of travel insurance policies are
widespread. Given increasing sales of travel insurance, potentially
driven by rising 18 Yancey, Kitty Bean and Bly, Laura. Travel
agents tips for stormy weather journeys, USA Today. October 30,
2012. Online:
http://www.usatoday.com/story/dispatches/2012/10/30/hurricane-
sandy-travel-agent-tips/1667173/
17. National Consumers League $tuff Happens 17
cancellation/change fees, there is a danger that misleading
marketing of travel insurance may be causing consumers to buy
policies under erroneous assumptions. The confusing nature of
travel insurance marketing on major airline Web sites only
exacerbates the likelihood of such uninformed purchases. IV.
Complaints Suggest a High Degree of Consumer Confusion and Anger
Regarding Limitations of Travel Insurance Consumer complaints
aplenty confirm that misleading marketing of travel insurance is a
significant problem for consumers, and thus, the industry.
Catherine Markland of Whitney, Texas relayed the following story in
March 2012: We purchased flight insurance with Access America
Insurance -- now called Allianz -- for the super-saver flights from
Dallas to Miami. In February I received an e-mail from Friendly
Planet saying that the tour had been canceled due to too few
participants. I was given the choice to receive a refund or to
schedule another tour later in the year. I decided to reschedule.
However, Access America denied the claim I made to cover the costs
of changing the American Airlines flights, which was $137 for each
of us. I had spoken to two representatives from Access America
explaining what had occurred, and both encouraged me to file the
claim since it was not my fault that the trip was canceled. The
process was time-consuming. I have written a letter to Access
America asking for a second review. I think Access America
insurance is bogus at best since the trip was interrupted
18. National Consumers League $tuff Happens 18 because it was
never started. What is the purpose of insurance if not to cover the
unexpected?19 Consumers have also reported difficulties in getting
their travel insurance claims paid by providers. A case in point is
Jessica Kamzik of Black Rock, Connecticut whose father was
diagnosed with stomach cancer in the summer of 2011. Kamzik
cancelled her vacation and filed a claim with Access America
Insurance (now doing business as Allianz). Unfortunately for Ms.
Kamzik, Access America denied her claim due to the companys claim
that her father had a pre-existing condition that was not covered
by the policy. They refused to pay based on what they say is a
pre-existing condition. They made this claim based on a doctors
note that was first sent in, which stated that my father had
symptoms two months prior to when he was diagnosed. Their insurance
policy says that if the client had symptoms 120 days prior to when
the policy was bought, the refund was void. Now, I understood this,
so asked for verification from his doctor. His doctor sent in all
the notes, explicitly stating that my father was very healthy prior
to his cancer, and that any symptoms he had were not necessarily
related to cancer. Yet, the travel insurance company still refuses
to refund our money. I will continue to fight this, however,
because I believe that Access America will do everything they can
to scam buyers out of their money. I went back to each of my
fathers doctors and had them confirm that my fathers symptoms 19
Elliott, Christopher. Travel Troubleshooter: Insurance Doesnt Cover
My Trip Cancellation, Frommers. March 21, 2012. Online:
http://www.frommers.com/articles/7641.html
19. National Consumers League $tuff Happens 19 were not related
to his current condition (a terminal illness). Even with both
doctors backing me up, Access America refuses to do the right
thing.20 Cheryl Ellis of Lees Summit, Missouri offered a similar
tale of a travel insurance issuer taking advantage of the
pre-existing medical condition exclusion to deny a claim: We booked
a trip to Cancun through Orbitz last year, and when we got to the
last screen of the reservation, it offered us a travel insurance
policy through Access America. We thought it would be a good idea
to have insurance, so we bought it. Afterwards, we received a
document with the specifics of our policy. I didnt read it because
I didnt anticipate having to make a claim. But I was wrong. Shortly
before our trip, my mother died unexpectedly. I called Orbitz,
which referred me to the insurance company. An Access America
representative told me to cancel the trip and suggested that I
reschedule it. They promised they would take care of the claim. A
few weeks later, Access America denied my claim for $951, because
my mother suffered from high blood pressure. The death certificate
listed the cause of death as being from natural causes. I didnt
know a natural cause was a pre-existing medical condition.21 These
arent isolated cases. The Better Business Bureau reports that more
513 complaints were investigated against a single travel insurance
company (Allianz Global Assistance) in the past three years.22
Another large travel insurance issuer, 20 Elliott, Christopher. Why
doesnt travel insurance cover dads illness? Elliott.org. January
16, 2012. Online:
http://elliott.org/blog/why-doesnt-travel-insurance-cover-dads-illness/
21 Elliott, Christopher. The Travel Troubleshooter: Is a natural
cause a pre-existing condition? Elliott.org. April 8, 2011. Online:
http://elliott.org/the-troubleshooter/the-travel-troubleshooter-is-
a-natural-cause-a-pre-existing-condition/ 22 Better Business
Bureau. BBB Business Review: Allianz Global Assistance. Online:
http://www.bbb.org/richmond/business-reviews/insurance-companies/allianz-global-assistance-
in-richmond-va-4001660
20. National Consumers League $tuff Happens 20 (Travel Guard
Group, Inc.) has had 204 complaints lodged against it at the Better
Business Bureau in the past three years.23 V. Lack of Regulation of
the Travel Insurance Industry at State and Federal Levels Leaves
Consumers Vulnerable Travel insurance, like most other forms of
insurance, is regulated by individual states. However, regulations
vary greatly from state to state. For example, in some states
insurance commissions regulate licensing requirements while in
other states regulations must be enacted by legislatures. The
travel industry, led by the U.S. Travel Insurance Association
(UStiA) with the backing of the American Society of Travel Agents,
has worked since 2009 to eliminate state-by-state travel insurance
regulations in favor of a weaker national standard issued by the
National Association of Insurance Commissioners (NAIC) and National
Conference of Insurance Legislators (referred to jointly at
NAIC/NCOIL).24 This is part of a larger lobbying effort being
undertaken in state legislatures across the country. For example,
thanks to industry lobbying, travel agents in California can now
offer travel insurance without a state-issued license by operating
under the umbrella of their travel insurance providers license.25
Industry efforts to change regulations do not appear to have
benefitted consumers. An important feature of robust consumer
protection is to provide a vehicle for the 23 Better Business
Bureau. BBB Business Review: Travel Guard Group, Inc. Online:
http://www.bbb.org/wisconsin/Business-Reviews/insurance-travel/travel-guard-group-inc-in-
stevens-point-wi-3000442/Complaints#breakdown 24 Rice, Kate. Travel
insurance regs are easing, but still pose peril, Travel Weekly.
March 11, 2013. Online:
http://www.travelweekly.com/Travel-News/Travel-Agent-Issues/Travel-insurance-regs-
are-easing-but-still-pose-peril/ 25 American Society of Travel
Agents. California Travel Insurance Update, Press Release. March 1,
2013. Online:
http://www.asta.org/News/PRDetail.cfm?ItemNumber=10129
21. National Consumers League $tuff Happens 21 resolution of
consumer complaints to be resolved. Consumers who are dissatisfied
with travel insurance providers have several options available to
them for reporting problems, including the Better Business Bureau
and state insurance commissions. However, it appears that insurance
commissions consumer protection role is not well publicized. Since
2010, only 64 travel insurance complaints have been reported closed
by NAIC.26 The UStiA simply refers complaints to the travel
insurers consumer affairs contacts.27 This is like the proverbial
fox guarding the henhouse. VI. Common-Sense Reforms Should Address
the Lack of Consumer Protections in the Airline Travel Industry
Even the most thorough preparation for a trip can be wrecked by
unexpected events. Gouging consumers whose plans change due to
family illness or other unforeseen events is not a good business
model. It also appears that given rising cancellation/change fees
and high refundable ticket prices, consumers may be turning to
travel insurance policies as hedge against these penalties.
Unfortunately, misleading marketing of these policies can lead many
consumers to purchase coverage under false pretenses. To address
these issues, NCL believes that a multi-faceted series of reforms
must be undertaken. NCL recommends the following: 1. Travel
insurance policies sold through airline Web sites or online travel
agencies should be marketed in clear, non-misleading language
Wording on travel Web sites for travel insurance policies should
disclose in 26 National Association of Insurance Commissioners.
Closed Confirmed Consumer Complaints by Coverage Type As of July
29, 2013, pg. 5. Online:
https://eapps.naic.org/documents/cis_aggregate_complaints_by_coverage_types.pdf
27 U.S. Travel Insurance Association. UStiA Consumer Complaint
Contacts. Online: http://www.ustia.org/contact/Complaints.aspx
22. National Consumers League $tuff Happens 22 large font and
plain language important limitations to policies. Consumers should
be told where they can find insurance coverage details and informed
of the timeframe to purchase travel insurance. Consumers should not
be pressured into purchasing travel insurance while shopping for
airfares and should not be led to believe that these insurance
products are only sold through the ticket checkout process. 2.
Travel insurance loss ratios should be reported According to the
UStiA, 17% of consumers who have purchased travel insurance file a
claim at some point.28 But we do not know how many consumers are
ever compensated when they file a claim. The industry should be
required to publicly report the loss ratios of their policies, i.e.
the percentage of premium dollars paid out in claims. 3. Tiered
cancellation/change fees based on proximity of travel date The
ability of an airline to sell a seat vacated due to a cancelled or
changed ticket is greater with more lead time before a particular
flight. This should be reflected in a tiered cancellation/change
fee policy. Flights cancelled or changed more than 5-10 days prior
to the departure date should incur no fee. 4. Consumers should be
able to transfer their tickets without incurring a fee While some
airlines accommodate consumer requests to transfer their unusable
ticket to another traveller, this is not standard industry practice
and is rarely easily done . With reasonable timeframes in place,
consumers should be able to transfer their ticket to another person
easily and without incurring a fee. 28 U.S. Travel Insurance
Association. Survey Reveals Agents Play Key Role in Travel
Insurance Purchases, Press Release. April 21, 2006. Online:
http://www.ustia.org/news/articles/agents-key- role-survey.htm
23. National Consumers League $tuff Happens 23 5. Congressional
oversight hearings should be convened to examine the growth in
cancellation fees, disparities in the price of refundable and
non-refundable tickets and misleading marketing of travel insurance
are needed. The development of an official record regarding the
industry practices detailed in this report will help shape
necessary legislative or regulatory reforms to establish
much-needed basic consumer protections. 6. Standby fees should be
eliminated for missed flights. Consumers who elect to fly standby
on the same day in the event of a missed flight should not be
required to pay an additional standby fee, which is currently
required by many airlines, since it costs the airlines virtually
nothing to fill an empty seat. Conclusion There is always an
element of uncertainty in consumers lives that can affect travel
plans. We believe that airlines have increasingly hit consumers
with ever-increasing cancellation fees and high-priced unrestricted
fare tickets. In response, consumers have turned to travel
insurance policies that are aggressively and deceptively marketed
as protection on the sale of virtually every ticket sold. To
address these linked issues, NCL calls on state insurance
commissions, the U.S. Department of Transportation and Congress to
examine what has become a regulatory black hole. The reforms
proposed in this report would do much to rein in an industry
reliant on high prices, punitive fees and penalties. This would
improve consumer protections, enhance trust in the travel industry
and benefit the traveling public.