Should travel insurers pay up after volcano disruption?

April 23, 2010

Rachel_MasonRachel Mason is public relations manager at independent financial service providers Fair Investment Company. The opinions expressed are her own. –

Flights to and from the UK may have resumed in part, but the thousands cancelled over the past week as a result of the volcanic ash are estimated to have cost the airline industry 1.1 billion pounds.

Each day the news is full of stories of woe from disgruntled travellers who have been forced to pay out hundreds and in some cases thousands of pounds to get home by any means they can, but will they be able to get that cash back?

Fears remain that travel insurance companies will try not to pay out, using the ‘act of God’ excuse, and unfortunately for travellers, there is no official line on this.

Nick Starling, director of general insurance and health at the Association of British Insurers says that travel insurance policies will differ and there is no standard set of conditions that apply to a situation of this kind, urging customers to “check their travel insurance policy.”

Great. So what does that actually mean? Well, according to the Trading Standards Institute, air passengers are covered to an extent by their airlines, for example airlines should bear the cost of cancelled flights and rerouting and provide meals, refreshments, hotel accommodation, transport between airport and accommodation, and two free telephone calls, faxes or e-mails.

But, and here’s the crunch, in cases of “extraordinary circumstances” which are “beyond the airlines’ control”, consumers are not entitled to compensation. So if you lose money (wages) as a result of the delays, or decide to take alterative transport home, you will not be covered by your airline, and most likely, you will not be covered by your travel insurance either.

So what about those holidaymakers who have not yet left the British Isles and decide they can’t be bothered with the hassle? Well, it’s not that simple. Obviously, insurance only covers events that happen after the policy is taken out, so customers taking out travel insurance from today onwards will not be covered for this event. And those who already have insurance and decide they no longer wish to travel (rather than cannot travel) will not be covered either.

Yesterday, the Federation of Small Businesses called on the ABI to urge its members not to use the ‘act of God’ excuse and pay up, with the FSB’s Stephen Alambritis saying he expects insurers to be understanding and not negate their duty to their customers.

While some insurers are making discretionary payments, for example Bank of Scotland is reimbursing many of its customers while Barclays is “considering claims for delayed departures as a gesture of goodwill and will continue to do so as the situation continues,” the ABI’s response on the possibility of enforcing a standard was not particularly promising, and it seems very unlikely that there will be a consensus on volcano related claims.

“For single-trip policies, all insurers will automatically extend the period of cover for those who are currently stranded abroad. This is typically up to a period of one month. For those who are still in the UK and have rearranged travel plans the policyholder can have their policy amended at any time before the new departure date and should contact their insurance provider to arrange this,” said Starling.

But all that this means is that travel insurance policies will still be in place if policyholders are stranded, it doesn’t mean it will cover the event. Starling’s response? He said that while a volcanic eruption is not a specific insured event covered in insurance policies, some cover for delay and travel abandonment may be available, but that will depend on the level of cover purchased by the policyholder and the terms and conditions.

“This will vary as there is no standard travel insurance policy” he said, and urged people to “talk to their insurer to determine the types of expenses which can be covered before you incur them.”

Well, that’s as clear as volcanic ash then!

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