Travel Insurance Increases & Service Interruptions

Welcome to Risky Business, Commercial Insurance with Butler Byers. This is Paul Martin, the business commentator on CKOM. And with me as always Colin Rooke, the commercial risk reduction specialist at Butler Byers, and this, the general expert on everything insurance on the commercial side, anywhere on planet earth. And that’s what we’re going to talk about today. Colin, we often talk about a specific sort of item like cyber or that kind of stuff, but a lot of times just plain old day to day news is the stuff that you watch what’s going on, you watch a newscast, you listen to a newscast, you read newspapers or whatever, and there’s all these stories that, well, they’re the ones that are around for a long time. Well, they also have an impact on insurance too, and I’m just thinking, okay, COVID, end of COVID.

Well, we talked about that forever, but now we’re talking about the fallout of it. And the one is finally, I mean, finally, we’re able to start traveling again and then all we hear about is interruptions at airports and delays and all that sort of stuff. And I’m guessing that this return to travel and the pursuit of getting back to a pre COVID normal has insurance implications too. And there is such a thing as a travel insurance policy. Has that surfaced up in have those things come together? Is the news of what we’re seeing in the airline industry in particular, starting to have an impact in insurance too?

Yeah, unfortunately it has. I mean, we spent a lot of time talking about the hard market, primarily in commercial, but certainly impacts in personal lines as well, over the last three to four years on this show. And although we didn’t specifically cover it, I would’ve said one of the few industries that kind of lines of coverage would be exempt from this would be the travel lines. And quite simply when no one is traveling, then fewer people are purchasing travel insurance. Claims are very, very low and therefore loss ratios are low and no reason to say it’s an unprofitable line and no increase required. So yeah, we’ve really sort of left travel insurance alone. The challenge now, and you touched on it is anyone that’s done any revenge travel or just resumed normal travel will have some kind of airport horror story.

I mean, we’ve all heard about what’s going on with Air Canada and specifically in Toronto. And Air Canada cutting 15% of the scheduled flights over the summer just to catch up and resume service levels. And it’s not just specific to Air Canada. And in fact, it’s a North America wide problem and probably a global problem. But all of that now has impacts on your travel insurance policy, if you have one and as a result, you either are seeing, or will be seeing sharp increases in premiums for travel insurance due to the resulting claims from all the service delays that are originating at the airport.

Just for clarity, this is the travel insurance, like the flight interruption, lost baggage stuff, not medical or health, emergency health insurance when you’re out of country. Correct.

Yeah, absolutely. And so basically, you may, let’s say you have a flight with Air Canada and they move the flight or you missed a flight due to service levels, but and Air Canada says, we’ll make you whole, and we’ll put you in a hotel room. Well, you may have missed connecting flights where those airlines aren’t going to refund anything because their flight left on time. So now we have those putting in claims. Or you’ve prepaid on VRBO for your vacation rental and now you’ve missed the first three days. And the whole vacation’s non-refundable. So we’ve got claims for that. Lost baggage, damage baggage, missing baggage. And so the result of the kind of mess in the airline industry is increased claims.

Now you did mention even the travel medical component. Well, even there you could say, well, if you’re not, in theory, and I’m not a medical expert, but in theory, if you were out of country and not feeling well to the point where you may need to see a physician and they do identify an issue, if able to you are supposed to try and get home. I mean, the physician will say, you’re cleared to travel, but you need to check into a hospital right away, but you’d be okay for X amount of time or. And so even in theory there, if you can’t get home, even those claims would increase because you’ve made attempt to get home. It’s not possible with the mess at the airports. And so it’s for the first time I mean, I tried to find data for unprofitable years for travel lines and not really finding much. So it looks like anyway, for the first time in a long time travel, the whole travel line of coverage has very high loss ratios and people are going to see those premiums increase.

Well, it’s fascinating just when you think things are getting better, there’s always a wrinkle, isn’t there. And my guess is your customers, or those who are calling Butler Byers and asking about this are likely if they’re seasoned travellers, they will know what the going rate was. And now they’ll see these new rates going up. They’re probably just as surprised as anyone.

Yeah, you’re right. For those seasoned travellers, like they’ll know exactly what it costs last time per day. And so it’s very easy to identify that this is up 35%, this is up 65%. The good news here though, is that travel insurance is almost always underwritten by other very large insurers. And so overall it makes up a very, very small percentage of premium. So the nice thing here is that even if the line of coverage isn’t profitable, I’m not going to be later on talking about this on the show saying, well, now DNO pricing is up because of losses in travel. It really is a small segment, but regardless they’re not in the habit of losing money on these lines of coverage.

Another thing we might also see, and it hasn’t happened yet, but like anything, depending on the losses, you’re going to start seeing restrictions, more restrictions, higher deductibles, reduce coverage, anything that they can do to recoup, right? So if you have let’s say a $500 limit for a lost bag, the revision might be a $200 limit. They’re going to do something to limit their exposure. If they can’t get away with I’ll call it enough rate.

I guess the real story here or the information we’re trying to pass on to our listeners is that if you’re planning some travel, be aware that this is a change and a byproduct of all of the sort of difficulty the airline industry’s having and getting back on its feet, and that then spins out to conferences, to hotels, to pick a topic, anyone in the hospitality sectors feeling it, and this is just buyer be aware.

Yeah. And this is going to be sort of the opposite of what I’ve just sort of suggested on talking about the industry itself. But if you are looking to travel, and it doesn’t appear like this situation is improving, despite rate going up, I mean, it’s going up because people need the coverage and they’re putting in claims. So I would say it’s still a good idea to purchase the coverage. Just don’t be surprised if it’s, again, it is more than it than traditionally has been. And frankly, for those that do buy the coverage, it is pretty darn inexpensive. So again, we’re not talking about pricing so high, it’s not worth going, but just, I just wanted to provide an explanation. If you’re now seeing that it’s more, it is a result of yeah, what’s going on in the airline industry.

Yeah. So if you’re finding its more pricey, this is the explanation.

Exactly.

All right. Well, listen, we got to take a little break Colin. And when we come back, we’re going to talk about another item in the news and something that has affected business really across Canada. So we’ll ask you to just hang with us for a couple of minutes. You’re listening to Risky Business, Commercial Insurance with Butler Byers back after this.

Welcome back to Risky Business, Commercial Insurance with Butler Byers. Paul Martin here, your host, and joining me, Colin Rooke, commercial risk reduction specialist with Butler Byers. Colin, we’re kind of looking at major events in the news in today’s program and just sort of what are the implications and what are the insurance questions that flow out of it? We talked about all of the challenges the travel industry has faced in the first half of the show, but now I want to talk about, well, something that, yeah, we all felt it, maybe not so much in Western Canada, but we did feel it a little bit. And that was the Rogers outage where their service, Rogers service went down. And since they’re predominantly an Ontario firm, that’s really where the crunch was, but all the national banks, all those kinds of guys, all our debit cards weren’t working for a couple of days out here. Are there insurance implications to that too? I mean, have you had to field questions related to that?

Yeah. It’s another one of those sort of neat, it’s been a unusual couple years for niche business interruption issues. And so I thought it’d be important to talk about on this show, but so yeah, interact was down some people for 36 hours, some people longer. And then phone lines being down up to five days or certainly broken coverage. So if you’re a business owner and you’ve purchased a commercial insurance policy, you probably have business interruption as a line item on that policy. And so it’s really easy to say, well, the phone lines were down. I couldn’t accept payment. I certainly lost business as a result. I want to put in a claim. And now we’re sort of back to the pandemic times where one of the issues with this type of policy is they’re triggered by physical loss, some sort of insured peril. And so, I mean, at a high level a service interruption due to an update, doesn’t really have a physical component to it.

Now, some people, very insurance savvy people might be listening and say, well, no, I have coverage. I’ve looked at the wording, I’ve got an endorsement on there that in the event of a utility failure, I do have coverage for damage to property, loss in income and extra expense. However, the fact that it was sort of a maintenance whoops, again, even if you have this line item, it’s really not, it’s not utility failure. There’s still no damage. There’s still nothing physical to report. It sounds like they, well, again, they were doing some routine maintenance that went poorly. The whole system went down, they had trouble restoring it. And so that’s one of the issues where, or reasons I’ll call it, why you may think you’re entitled to something, but then chances are, I don’t want to comment on every policy in existence, but chances are you’re not going to get the news you’re looking for.

Yeah. We’re really starting to find nuances aren’t we, these days in what is an interruption. And the pandemic kind of put us all on alert on that and starts to making you ask some real hard questions about this. And I guess it’s kind of implicit in this is that yeah, I went down so I couldn’t do business, but my competitor went down too. So I mean, was I really prevented from doing business any more than anybody else was? So is that an issue, is that sort of a consideration in this?

Yeah. And that’s sort of the second problem with an outage like this, that you could say, yeah, I had customers come in that couldn’t pay and walked out and, or I couldn’t be reached by phone. So my business was interrupted. My income was affected as a result. However, your customer that walked, let’s say you have a coffee shop and your right next door to your primary competitor. I walk in, I try and buy coffee, payments down. I leave, I go next door. If the payment, in theory, if I was able to pay there, you could say, well, see, due to my service interruption, I am out X amount of revenue, but you couldn’t have gone to your competitors and paid either. So it’s not really income loss. It’s sort of income deferred. It would be very difficult to make the argument that you lost a customer that will never come back. They most likely had to wait. And again, phone calls as well, right?

If anyone on the Rogers network is unable to make calls and then frankly, also unable to pay, it’s very difficult to make the argument that, and frankly prove the amount you would’ve been out. Now I’m not saying there’s no one that would have a scenario, but at a high level, if there was sort of some utility service failure due to damage, it still would be very difficult to prove that you’re out if everyone in your area, all your competitors, I mean, this outage was a big deal. It wasn’t centralized to a small area. And so, again, even if there was an insured peril that would suggest there’s coverage, you still may get a denial based on your inability to prove any actual loss.

I guess the moral of the story is carry a little cash all the time because cash was still functional in that period. So if you needed your coffee, if you had a $5 bill in your pocket, you could get one.

It’s funny, because I tell everyone that, just as a sort of a side risk management, we’ll go through our assessment and if I can fit it in there, I talk about why it’s so important to carry cash. And since this outage, in fact, we were away at a soccer tournament. I was telling everyone why I carry cash and why everyone else should be for this very reason. So yeah you are absolutely right. Carry cash. Cash is king. And certainly in situations like this.

Funny thing, there was a fact that came out that during pandemic, the demand for cash went up 60% at the banks, like people were stockpiling cash. Pretty interesting. All right. Colin, one last thing before we go. The other topic that’s catching a lot of attention is talent shortages and workforce and competing for employees and no different for you.

Yeah. I just wanted to add that we are looking to expand our team specifically in the commercial department. So if anyone that listens to this show, you’ve got some experience in commercial, whether commercial account manager, you’re interested in production, on the production side, if you just want to chat, I’m all ears. But we could really use more people in commercial insurance in an account manager role. So if you’re working in the industry and you’ve always wanted to get into commercial, and certainly if you’re in commercial now and you like what we’re talking about, you like the idea of working on risk first, our different method of tackling the insurance program, the insurance problem with the industry, please reach out. Like I said, we’re in growth mode. We want to grow our team aggressively. We’ve got multiple positions we’d like to fill on both commercial account management and also if you like what we’re doing here on the sales end, reach out to me and we can chat further about what that looks like.

All right. Thanks Colin. You’ve been listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers and now new recruiter with Butler Byers Insurance. This is Risky Business. I’m Paul Martin. Thanks for joining us. And we’ll talk to you next time.