Taking flight: since Sept. 11, travel insurance rates and sales have been on an upswing. (Property/Casualty).

Ticket lines at travel counters have shortened since Sept. 11, but for many insurers, sales of travel insurance policies have never been higher. Although people may be traveling less, the terrorist attacks have reminded many about the need to protect themselves when they are away from home.

"While we though Sept. 11 would impact the travel insurance business as it has travel, we found it to be just the opposite," said Bill Dismore, executive vice president of G.M.C.G., which administers the programs of I Travel Insured.com, based in Fort Lauderdale, Fla., and Dallas-based Itravelinsurance.com. "Even though less people were traveling, many more were taking out insurance, and I think the phenomena can be attributed to greater awareness." I Travel Insured.com reported a 45% to 75% increase in travel insurance sales each month since Sept. 11.

Now, several months after the terrorism, travel is beginning to rebound. While many insurers and travel companies are re-examining options and adjusting prices to accommodate rising reinsurance rates, they are optimistic that travel insurance sales will continue to soar in the coming months.

Travel Today

Both business and leisure travel sales have dwindled significantly over the past several months. The American Automobile Association reported a 60% drop in travel bookings in the aftermath of Sept. 11. According to a national survey of travel intentions issued by the marketing services firm Yesawich, Pepperdine & Brown, 18% of travelers said their plans for leisure travel continue to be affected by the events. Two-thirds of travel buyers said their companies reduced travel spending for the current quarter, according to a study conducted by Equation Research on behalf of Business Travel News and USA Today.

Fear of terrorism still weighs heavy on the minds of many would-be travelers. Only 35% of all fliers and 45% of frequent fliers reported being "very confident" in the safety of planes, according to a recent Newsweek telephone survey of 1,000 adults. In fact, 37% of those surveyed said they are less likely to fly in the next 12 months, and 31% said air travel is less safe today than it was five years ago. Individuals' fear of flying remains the most often-cited reason for curtailing air travel plans.

"We're now in the situation where the travel industry is holding its collective breath, hoping another incident like Sept. 11 doesn't occur," said Dan McGinnity, vice president of public affairs for Stevens Point, Wis.-based Travel Guard International, which insures more than 6 million travelers a year. Travel Guard is also an underwriter, sharing the risk with Ace Group.

Not only have U.S. citizens' travel patterns changed since Sept. 11, but international travelers also have been affected. "Two things happened after Sept. 11--people are traveling less, and those traveling are staying closer to home," said Fiona McDonald, manager of travel insurance for Royal & Sun Alliance. She said pre-Sept. 11, nearly 75% of United Kingdom travelers traveled in Europe, while the remaining 25% visited locales outside the continent. But the number of travelers staying within European borders rose to 85% over the past several months. "Long-haul journeys have fallen dramatically across the globe, and people aren't as willing to go far away from home as they were in the past," McDonald said.

But as time passes, travelers are slowly becoming more comfortable as travel operators increase security measures. "The state of travel, in general, is rebounding faster than what was originally anticipated," said Travel Guard's McGinnity. Some insurers cite that in the United States, travel sales to certain destinations, such as Canada, South America and the Caribbean, are increasing more quickly than sales to other locales, particularly the Middle East and Asia.

All-Time High Insurance Sales

Unlike many other countries, including Europe and Canada, where travel insurance is purchased by 75% to 95% of travelers, the number of purchases by U.S. travelers has been significantly lower over the years. Since Sept. 11, however, travel insurance sales have increased, and insurers are reporting record numbers of sales of trip-cancellation policies.

"Sept. 11 was a big wake-up call for the whole travel insurance industry," said Angelo Masciantonio, co-founder and chief executive officer of HTH Worldwide Insurance Services, a Radnor, Pa.-based provider of online healthcare information and insurance services tailored to international travel, study and commerce. "People who didn't appreciate the value of travel insurance were certainly enlightened by the events of Sept. 11," he said. "They now recognize the need for immediate access to help and security information and realize that having travel insurance and the tools to address the 'what ifs' is not a luxury, but a necessity."

Claudia Fullerton, chief marketing officer of San Diego-based CSA Travel Protection, which provides travel insurance and assistance services, said her company has seen a growing number of travel insurance sales over the last several months. "I believe [Sept. 11] triggered people to think about for the first time," she said. "When it doesn't hit close to home that you could actually be affected and need something, you generally don't think about it." This awareness has given CSA Travel Protection the opportunity to better educate potential travelers about what the insurance entails and the benefits it provides, she said.

Curt Carlson, marketing director of Specialty Risk International Inc., an Indianapolis-based provider of travel medical programs, agrees. He said a majority of travel insurance sales came after customers examined their own policies and realized they weren't covered. "So that which was lost was replaced by a greater extent with a market segment we had never previously reached," he said.

Insurers believe Sept. 11 has helped educate today's more sophisticated traveler. As a result, companies must provide the quality protection those sophisticated buyers demand, said Peter Gehris, president of Travel Insured International.

Terrorism Coverages

Travel insurers paid close attention during the debate over whether the events of Sept. 11 would be classified as an act of war or an isolated terrorist incident. "Insurers were scrambling for a definition, and eventually the right call was made as a terrorist attack' said Dismore of I Travel Insured.com. As a result of the debate, the industry is taking a closer look at its definitions of terrorism and making sure they are clarified in its policies, he said.

While nearly every insurer defines terrorism coverage differently, many across the industry are beginning to offer somewhat similar coverage provisions. For example, CSA Travel Protection defines terrorism as "a terrorist incident in a foreign city in which a person is scheduled to arrive within 30 days following the incident."

"I don't think that anybody had specific language that addressed domestic terrorism, because it didn't occur to any of us that this could actually happen," Fullerton said. But even though CSA's coverage didn't apply to a domestic terrorist incident, most customers' claims were covered under other coverage provisions, such as trip cancellation, trip interruption or trip delay. GSA plans to look at its terrorism definition language and make any revisions it deems fit.

While Sept. 11 motivated some insurers to add terrorism coverage to policies for the first time, others have included such coverages for a number of years. Beth Godlin, senior vice president of marketing, World Access Services Corp., said the company's Access America was the first product to add coverage for terrorist events under its trip cancellation/interruption benefits. "Prior to that time, none of the travel insurance policies provided any coverage if a terrorist event in a city forced someone to want to cancel or interrupt their trip." The 1986 bombings in Libya spurred the company to investigate the need for such cover, which later became a standard provision in all its travel insurance policies.

"When the events of 9/11 forced the industry to relook at their policies, we felt the need to add coverage for terrorism in U.S. cities to ensure that our products remained relevant and our coverage offerings as comprehensive as possible," said Godlin. In November, World Access added a suite of products to address terrorist events in the United States. The product--Free-to-Go--is designed to protect travelers in case a terrorist incident occurs in a U.S. city in which they are scheduled to arrive within three days. Under one of the product's provisions, travelers can rebook their trip and the company will reimburse them for the published penalty or change fee up to the amount of coverage purchased for the original trip.

Rate Increases and New Options

In addition to adding or revising terrorism coverages, some insurers have made other changes to their travel insurance policies since Sept. 11. Rate increases and revised or additional options have become more commonplace in the past several months.

Supplier default coverage, which protects travelers from companies that suffer financial woes or file for bankruptcy, has been a top priority for many travel insurers. While some have opted to remove the coverage, others have made special provisions to protect both travelers and themselves.

"One of the results in the overnight change in the travel industry; with 30% drops in travel, was that some suppliers were unable to withstand the sharp decrease and filed for bankruptcy, forcing some large companies out of business," said Godlin.

The bankruptcy of Renaissance Cruise Lines on Sept. 25, 2001, was a blow to many travel insurers, forcing them to re-examine their supplier default coverages. I Travel Insured.com was among the many insurers that saw a flood of claims as a result of Renaissance's demise.

"After Sept. 11, every company struggled with the default benefit and handled it in different ways--whether with a list of acceptable or unacceptable suppliers or, as in our case, limiting the benefit to $3,000 a person," Travel Insured International's Gehris said. While the company initially withdrew its default benefit after Sept. 11, it has since put the provision back into its policies.

Some insurers believe other types of coverages also may need to change to accommodate post Sept. 11 travelers. Travel Guard's McGinnity believes travel insurance companies that want to find success in the market are going to have to expand the emergency services they provide. "We understand that while protecting financial investment is important to them, travelers now want the security of knowing that if something goes wrong, they can call someone who can help with such things as rebooking a canceled airline flight, finding a hotel room, locating a doctor or arranging for a medical evacuation." He said Sept. 11 spurred travelers' increased focus on safety, security and service.

Rate increases also have impacted several insurers and travel companies. "Our prices went up slightly, principally as a reflection of reinsurance rate increases brought on by 9/11 claims," said Dismore of I Travel Insured.com. Reinsurers have to recover losses by spreading pricing around in many markets, including travel insurance, he added. I Travel Insured.com's rates have increased by 12% to 14% since Sept. 11.

Rising Ratio

Royal & Sun Alliance also anticipates slight rate increases to curtail rising reinsurance costs. "Travel insurance markets in general are going to see rates going up because of the extra reinsurance charges that are going to have to be paid for," said McDonald. "I think rates on travel insurance have been held artificially low for a number of years now, and that will start to show up in the next one to two years as prices go up." McDonald also believes travel insurers will see less capacity across the industry in the aftermath of Sept. 11.

"Underwriters, rightfully so, are being very selective with who distributes their products. As a result, there's a continuation of companies dropping out of the business, as others enter the market," said Gehris. In addition, he said many smaller agents have taken a beating from the severe drop in travel sales. The trend of consolidation and closing of smaller agencies has grown significantly since Sept. 11, he said. "However, the survivors in the industry are bigger, financially stronger and better businesspeople."

Tomorrow's Travelers

In a recent article from Reuters, Phil Condit, chief executive officer of Boeing Co., estimates it may take 28 to 48 months before U.S. air travel returns to pre-Sept. 11 levels. But insurers are a bit more confident.

"Because awareness levels have gone up tremendously, and many Americans are now getting cabin fever from staying home so long, we will continue to see more people traveling again," said I Travel Insured.com's Dismore. He said the industry is likely to see a continuation of record sales of travel insurance in the future.

"Travel insurance will now become more a question of 'with whom' rather than 'if at all,' said Carlson of Specialty Risk. He said buying travel insurance will become more mainstream, and he expects travel coverage to eventually be included in more companies' major-medical benefits plans. "I foresee an increase among Fortune 500 companies and any business with a population of traveling executives or incoming visitors to secure arrangements for travel-medical, emergency-evacuation, repatriation and accidental-death coverages."

The travel-medical business will grow as it accommodates an aging population, said HTH Worldwide's Masciantonio. He predicts that Medicare enrollment will swell from 30 million people to more than 85 million in the next 15 years. "Baby boomers will read the first page of their passports and learn that Medicare doesn't cover them outside the country." He believes this will result in an explosion in sales of supplemental travel health insurance products.

The direction of the economy also will impact travel insurance sales in the coming months. "This is a business that will always have some ups and downs based on the economy and peace in the world," said Travel Insured International's Gehris. "So when things are going well, travel will continue to expand."

Dismore agreed: "I believe the next two years will be golden years for travel insurance and the travel industry, if we can just hold on for another three months or so."