London, 21 April 2010
It's traditional on these occasions to thank the conference organiser for the chance to address such a distinguished audience – and for their foresight in picking such a timely opportunity for discussion of the subject at hand.
This is certainly such an occasion. Indeed, I think we can all congratulate your Association unreservedly. They have chosen precisely the time when travel news has been the lead item not just on one news bulletin but consistently for most of the past week.
As the Icelandic ash cloud has swirled above much of UK and European airspace, many of us have friends and colleagues who have had their travel plans ruined – or who have been stranded in all parts of the world. I'm sure you will join with me in wishing for a speedy end to the disruption we have seen – and for the early and safe return of all those currently stranded abroad.
As you know, the ombudsman is charged with the statutory responsibility of resolving “promptly and with the minimum of formality” the disputes that you – financial businesses and insurers – and your customers cannot resolve by agreement.
We must decide those cases based on a fair and reasonable consideration of the circumstances of each individual case. So we do not make general rules for the financial services industry – or place requirements on customers. And while we try to feed back to policymakers the wider lessons that emerge from the disputes we consider, our formal role is limited to the consideration of only those unresolved disputes that are actually referred to us.
So I hope you will understand that, in the circumstances, I am not going to debate the pros and cons of present arrangements. The focus today is rightly on the practical help and assistance that you and all the other parties involved can provide to those in need. I am sure that the insurance industry will be playing a constructive and positive role.
Indeed, over the past years other major incidents have resulted in remarkably few complaints to the ombudsman. The disputes referred to us following the widespread flooding in the UK a few years ago – for example – were more about detailed service problems in individual cases rather than general questions about the nature and scope of the cover the insurer should have provided.
So whilst we often see travel insurance in the headlines, the reality is that your sector forms only a modest, though significant, part of our work.
Modest in volume – typically around 2,000 cases a year, which is less than 2% of our overall caseload and certainly a very small number when compared with the number of insurance policies sold and travel insurance claims made. But significant – because of the impact many of these cases can have on the parties involved, and because of the lessons that I think can be drawn from those customers who are dissatisfied with your service and take the time and trouble to complain about it.
In many respects, travel insurance disputes are little different from the majority of our insurance caseload. A common theme in complaints is where your service and your customer's expectations do not match.
The simplest example of this is service failures – perhaps in organising medical treatment or repatriation. Helplines that don't operate when needed and delays in reaching decisions on care and repatriation are all regular features of our caseload.
No doubt these issues will arise again from present circumstances. And where service is unsatisfactory, we will not hesitate to uphold complaints in favour of the customer. Travel insurance claims are often stressful. And we make due allowance for the difficulties both parties can have in managing the situation in unfamiliar surroundings, with limited information and sometimes over different time-zones.
Of course, some consumers may have unrealistic expectations. In those cases, we will explain why the service you have provided meets reasonable standards – where we decide this is so. In the case of the very few, the expectation seems to be that untruthful claims are a valid way of contributing to the cost of the holiday. We will reject any cases we see like this. And we are committed to working with the insurance sector on reducing fraudulent claims.
However, underpinning all this, a common cause of conflict between expectations and service – and so a common cause of customer dissatisfaction and dispute – is the lack of clarity about what “travel insurance” actually covers.
The volcanic ash saga is the latest in a long line of widespread travel woes that have given rise to significant disruption for customers. “No fly” restrictions following terrorist outrages. Travel controls in response to medical emergencies – think foot and mouth, bird and swine flu. Tsunamis. Travel company bankruptcies. Air traffic controller strikes abroad and other industrial action. All of this and more have caused – or at least threatened – significant disruption to many of your policyholders' travel plans over the past decade.
It is tempting to ask you, as professional intermediaries, which if any of these events are covered by typical travel insurance policies.
The reality, as you know, is far more complex than the question. Travel policies can and do differ widely on such points. The ABI, for example, has recently rightly advised customers to check their policies and speak to their insurer to understand the extent, if any, of their insurance cover in present circumstances. The ABI has stressed that insurers will look positively at claims.
But of course, by the time a claim is made it is largely too late. From a customer perspective, getting reliable information on what travel insurance covers is far from easy.
Travel policies are inherently not simple documents – despite the efforts of many insurers to keep to plain language descriptions of the cover they do and (just as important) don't provide.
Typically, travel policies rely on “terms of art” – think about the expressions “curtailment” and “pre-existing condition” – which mean little to most consumers without extensive explanation. And by bolting together medical, possessions and cancellation/curtailment cover, most policies are by any standards a lengthy and complex consumer contract.
And it is this contract that determines the essence of what is being delivered. Only by understanding much of the “small print” of the contract can a consumer truly compare products – and make an informed choice about what meets their needs and what they want to buy.
That, of course, is true for many insurance policies. But increasingly, travel insurance stands out as one where there is a gap between expectations and reality.
Our household and motor policies cover all the significant risks we associate with them. By and large, they do what they say on the tin. But for travel insurance, the most significant risks – that is, the unplanned and the unexpected events most likely to blight travel plans – are in many cases not covered.
Let me rapidly stress this is not the ombudsman saying what should and should not be covered by a travel insurance policy. It is a matter for underwriters to determine the risks they want to cover and those they don't. Some risks may not, in effect, be insurable. The ombudsman will respect clear and well communicated policy terms and cover.
But as long as this gap between expectation and reality exists, I expect we will continue to see problems and complaints referred to the ombudsman. And until consumers can more readily compare and understand levels of cover, the market in which you operate will not work well for consumers or insurers.
These challenges are made worse by the fact that for most consumers, travel insurance is a bolt-on product. It is the “oh, I better have that” purchase, at the end of a far more interesting discussion about swimming pools, flight times and hotel location.
As we have seen elsewhere, when consumer interest and engagement is lacking – where competition is limited to securing distribution channels, and profitability is achieved by reducing cover – the end outcomes do not serve either the consumer or the industry well.
I think this is an area where the insurance industry itself can and should take the lead. Can distinctions of cover be more clearly drawn? Can the words on the tin more accurately reflect what the customer should expect from your service? Is it time to look again at what travel insurance is for?
This reassessment has taken place successfully elsewhere in the insurance sector. Much work has been done, for example, to re-think critical illness insurance – learning from the experience of all customers, including those with complaints. The ombudsman has played a constructive and impartial role in helping those industry-led developments.
But that is all for the future. Today all our thoughts are rightly focused on volcanic ash and the needs of travellers in difficulty.