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A woman helps her sister search for missing luggage through the rows of unclaimed baggage, after arriving at Toronto Pearson International Airport in Toronto on July 2.Tijana Martin/The Globe and Mail

Travel insurers will see a wild swing to losses in 2022 as flight delays, cancellations and missing baggage continue to wreak havoc at airports around the world.

Air travel in Canada, the United States, Britain and Europe has been hit by major disruptions in recent months amid staffing shortages, labour disputes and increased operational requirements. Some airlines, such as Air Canada and WestJet, have cancelled thousands of flights this summer, leaving ticket holders scrambling for alternatives.

The turmoil has triggered a higher-than-usual number of travel insurance claims that will affect insurers’ loss ratios around the world, said Marcos Alvarez, senior vice-president and global head of insurance at DBRS Morningstar.

“This will compound the problems already experienced by the travel insurance business since the beginning of the [COVID-19] pandemic, as insurance companies were initially hit by a jump in claims and then by the collapse of global travel, which considerably decreased the demand for this product,” Mr. Alvarez said.

In 2021, the global travel insurance market’s gross premiums reached about US$17.6-billion, after a significant drop in 2020 because of the initial impact of COVID. And while total travel insurance premiums will likely grow over the next decade, insurers will most likely pay out more in claims this year than what they receive in premiums, making the travel insurance line for most providers unprofitable.

Mr. Alvarez estimates travel insurers will pay $1.20 to $1.30 in claims for every $1 earned in premiums. Prior to the pandemic, he said, studies showed global insurers would typically pay out about 85 cents in claims, commissions and expenses for each dollar they received in premiums. (Travel insurers pay out higher average commissions to distributors than other non-life insurance products.)

In Canada, major insurers that offer travel products include Manulife Financial Corp., TD insurance, TuGo travel insurance and Allianz Global Assistance Canada.

Travel insurance typically provides policyholders with a partial or full refund for certain expenses or losses incurred during domestic or international travel, such as trip cancellations and delays, loss of luggage and emergency medical services.

Even in situations in which airlines can accommodate passengers on cancelled flights by offering a different flight or fully refunding the ticket price, policyholders look to recoup other costs under trip cancellation or trip interruption plans. These can include expenses associated with connecting flights on a different airline, prepaid hotels, tour company charges and car rentals. Flight and baggage delays can also quality for compensation under certain policies, including payments for essential clothing and toiletries.

But now, with insurers’ losses for such claims mounting, the premiums for travel insurance products are expected to increase in the short term, according to a recent DBRS report. As well, analysts predict some insurers may stop providing trip interruption and cancellation coverage for a certain period, while others may decide to exit or decrease their exposure to the travel insurance business altogether.

“We believe that such a strategy will only be a temporary restriction as airline and airport performance improves over the coming months,” Mr. Alvarez said.

In Canada, where travellers are experiencing some of the worst airport delays in North America, insurers are seeing a slight rise in claims being submitted, but did not comment on losses associated with the delays.

Will McAleer, executive director at the Travel Health Insurance Association (THIA), a national organization representing travel insurers, says some providers in Canada have begun to exclude these types of widely publicized delays from policies, citing them as now “known events” and thus no longer covered.

TuGo chief customer officer Brad Dance said the company has only seen a “slight increase” in the number of trip cancellation and interruption claims.

“There have been a few claims where flights that are normally delayed by an hour or two are actually being delayed, in some instances, by a day or more,” he said in an e-mail to The Globe and Mail, “... and we have seen a definite uptake in policyholders receiving an airport lounge pass or cash payout.”

TD spokesperson Paolo Pasquini says the insurer has not seen an increase in trip cancellation and trip interruption claims “above expectations.” But claims for baggage loss – which is coverage provided by most credit cards – is increasing, he added, although those claims are typically smaller dollar amounts.

Manulife and Allianz did not respond to The Globe about whether they have seen increased claims.

However, despite the large drop in profitability for most companies this year, travel insurance typically accounts for less than 5 per cent of a major insurers’ total gross premiums written.

“Losses should remain manageable given insurance companies’ high degree of diversification across different business lines,” Mr. Alvarez said. “For most of the largest travel insurance providers, the relatively low contribution of travel insurance to overall revenues will help mitigate the impact on insurance companies’ credit profiles.”

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