Need to know
- Many consumers are pressured by airlines and travel agents into buying poor-quality 'add on' travel insurance that isn't right for them
- Some Australians have been stranded overseas, having been told their insurance policy won't cover them for anything relating to COVID-19 coronavirus
- The Banking Royal Commission recommended reforming add on insurance – the federal government must now turn this recommendation into law
Here at CHOICE we've been overwhelmed recently by people contacting us, concerned about whether their travel insurance will cover them for pandemics, including coronavirus COVID-19.
We're hearing from desperate people stranded overseas, in countries such as Bali, whose travel insurance company has suddenly moved the goalposts and stopped offering cover. So despite doing the right thing and taking out a policy, these people are now totally exposed.
These concerns lay bare underlying problems within the travel insurance sector. First, they show that companies don't do enough to make sure you understand exactly what you're covered for. Second, they underline the shortcomings of buying travel insurance through 'add on' channels such as airlines and travel agents, who care more about making a quick buck than ensuring you have the right cover in place.
Now, more than ever, it's essential that people get good-quality travel insurance and understand exactly what they're covered for. The quality of travel insurance sold through add-on channels simply isn't good enough. We recommend searching directly for the best policy and not relying on the default cover provided by an airline or agent.
Our research has found that buying travel insurance through an airline is up to 3.5 times more expensive than buying it directly from the same provider, and that there are policies with better coverage available to people who buy directly. Nor do airlines give you enough time to decide whether the insurance they're offering is right for you and your trip.
In recognition of these issues, the Banking Royal Commission recommended a new 'deferred sales model' for add-on insurance. If the federal government turns this recommendation into law, airlines and travel agents would only be able to contact you to offer travel insurance four days after you've secured your flights. This would give you reasonable time to compare insurance providers and work out which policy would suit you best.
When we re-emerge from the COVID-19 crisis, the government must act on this recommendation. It has an important role to play in improving the travel insurance sector and preventing Australians being sold poor-value insurance. Such action would also lower the risk of Australians being stranded overseas if a similar crisis arises in the future.
Why add-on insurance needs an overhaul
Travel insurance contracts are complex legal documents that often run to more than 50 pages. An insurance company will cram this contract (known in the industry as a product disclosure statement, or PDS) with opaque legal jargon that makes comparing policies difficult for most people.
As the name suggests, 'add-on' travel insurance products are always tacked on to the end of a purchase, when you're eager to finish buying – and therefore lock in – your flight or holiday. But we believe that travel insurance is too essential to be subject to these kinds of marketing ploys, as the current pandemic starkly highlights.
People need time to read and review the PDS. It covers critical terms and conditions about coverage, exclusions, and pre-existing medical conditions, including the type of healthcare support you'll be entitled to during a pandemic. Airlines give you no time to consider any of this.
QANTAS gives you just 10 minutes to read the terms and conditions for a document that's more than 15,000 words long
For instance, QANTAS gives you just 10 minutes to read the terms and conditions for a document that's more than 15,000 words long. We've found it takes an average adult more than one hour to read this document. But if you don't make your decision within 10 minutes, you may lose your seats. This is precisely how airlines pressure people into making poor decisions.
Buying travel insurance through a travel agent is just as problematic. Travel agents get a kickback for every insurance product they sell. Commissions can be as high as 65% of the premiums you pay. Many agents are affiliated with only one insurance provider, which may not offer the best product for you.
But then travel agents have no legal obligation to sell you high-quality insurance, nor to explain the coverage or ask you about any medical conditions. The more insurance products they sell, the more money they make. It's that simple.
The government must act to protect consumers
So will the Banking Royal Commission's recommendation regarding the deferred sales model become law? Treasurer Josh Frydenberg has committed to making sure it does.
It comes as no surprise, then, that industry lobbyists are now fighting tooth and nail to stop travel insurance being captured by this reform. Clearly, these lobbyists are more concerned about maintaining their commissions and "tick a box taxes" than ensuring people get high-quality insurance cover.
Insurance lobbyists have form. For years now, they've argued for carve-outs and loopholes that let them line their own pockets and ignore their obligations to consumers. They've already spent a decade campaigning against a law that would prevent them from including unfair terms and conditions in their contracts. In February 2020, after years of campaigning by CHOICE and other like-minded organisations, the federal government turned this important consumer protection into law.
When the COVID-19 crisis abates, the federal government has an important opportunity to ensure we all have access to high-quality travel insurance. The government must introduce a deferred sales model without carve-outs or loopholes for airlines or travel agents. It would be a major step forward in guaranteeing that Australians have peace of mind that the travel insurance they buy gives them the coverage they expect and deserve.
Stock images: Getty, unless otherwise stated.