If the pandemic had done nothing else in the past few years, it has convinced travel advisors and guests to buy travel insurance. The thought of being stranded in a foreign hospital, or quarantine facility, and possibly being prohibited from flying home on a scheduled airline has made nearly everyone a believer. It has convinced nearly everyone they need a travel insurance policy that treats COVID-19 as “any other illness or accident.”
Some guests are signing up for CFAR (Cancel for Any Reason) travel insurance that entitles guests to a refund for almost any reason. CFAR policies are often 30-40 percent more expensive than other policies offering the same benefits, and some only pay off in credits for a future trip. Also, some apply a percentage deduction against the refunds the guests claim.
Remember that travel advisors are not permitted to “sell” travel insurance in most states. They must go through the fiction of “making guests aware of travel policies,” for which the insurance companies pay 18-25 percent commissions on the sale of most policies not sold by the cruise line.
Many people buy a cruise line’s travel insurance because it is not “age-rated.” This means that whether the guest is a fit thirty-year-old or a senior in his eighties that takes more than a dozen medications daily and get around with a walker, both will pay the same price for their travel insurance! For anyone who has reached retirement age, the cruise line’s travel insurance often cost half as much as other insurance policies paying the same benefits.
But in today’s world, the adage that “terrific buys” are often too good to be true applies to some travel insurance policies. I carefully examined the two cruise line insurance policies I had bought for myself and noted a troubling omission.
Many travel insurance policies permit cancellations if any travel supplier (cruise lines, hotels, travel agencies [?]) becomes financially insolvent, cannot perform the purchased services, or goes into bankruptcy. Neither of the policies I had bought from two of what I consider to be the Big Five luxury cruise lines (Regent, Seabourn, Silversea, Viking, Oceania) included a provision that financial default would trigger refunds. One of the two policies specifically warned that financial default was not a reason for paying off the policy.
Squaremouth.com, an insurance company that uses licensed agents to sell travel insurance policies directly to the public via the internet, identifies many policies that pay off travel cancellation benefits if a company defaults. Also, I found one insurance company that won’t pay off in case of financial default when the cruise lines sell the insurance, but whose Squaremouth product does pay off.
My apologies for not being more specific about the companies and the cruise lines. I’m not a licensed insurance agent and, therefore, not permitted to give recommendations or compare insurance products. Is financial default a possibility for today’s cruise lines or resort properties? One only has to point to Crystal—a highly respected luxury cruise brand—that went bankrupt earlier this year.
The Motley Fool (a private investment newsletter) summed up their take on the situation on May 24, 2022, when they published an article by Travis Hoium, Why Cruise Line Stocks Are Plunging Today.
The article showed that Carnival and Royal Caribbean have tripled and doubled their long-term debt in the past two years, rising to 34.9 billion dollar and 22.5 billion dollars respectively. Despite this year’s accelerated sales, all three lines are still losing money. Among the “remedies” reported in the trade press for Carnival is scrapping or selling off more of its older ships; and selling Seabourn—their most prestigious cruise line—to the Saudi Sovereign Wealth Fund. These transactions, if they do occur, will reportedly pay off some of this year’s interest expenses.
I attended a Signature training event in Los Angeles for the past two days, and the common theme of the speakers was to conserve cash and maximize immediate revenue. Some attendees discussed the possibility of the Saudis buying Seabourn. The sale ties in with Saudi efforts that are nearing completion to open some of the largest and most well-equipped cruise terminals in the entire world.
If the deal goes through, this may ensure Seabourn’s future as a viable cruise line and defer a day of reckoning for Carnival, but what will happen to other cruise lines that do not have the vast Saudi oil resources on which to fall back? That’s why insurance coverage against defaults is an essential component of any travel insurance policy.
Two days ago, Virgin Cruises delayed the launch of the Resilient Lady by nearly a year, canceling some sailings. “The Florida-based line cited a mix of challenges affecting its business for the decision, including supply chain and staffing issues related to the COVID-19 pandemic. It also hinted at demand issues related to the war in Ukraine.”
Whether the guests who already paid will receive cash refunds for the sailings and airfare is already being discussed in the trade press. Being neither a lawyer nor a licensed insurance broker, I won’t even venture an opinion.
You might want to check if any of your clients hold insurance policies that do not ensure against financial defaults. If any of my clients are concerned about this situation, I’ll offer to make them aware of policies covering financial defaults and refer them to Squaremouth.com for additional possibilities. Since all the other policies which I’m aware of are age-based, the policies will likely be more expensive for elderly clients if they decide to change policies. They will also have to pay cancellation fees.
It could help if the leading travel consortia and large travel agencies could include licensed insurance brokers on their staff through which guests could purchase more appropriate travel insurance.
What do you think should be done to clarify and improve travel insurance products?
Dr. Steve Frankel and his wife have cruised on most of the Seabourn, Silversea, Crystal, Azamara, Oceania, Regent, and Windstar ships. He writes a weekly column, Point-to-Point, for Travel Research Online (TRO) that’s read by more than 80,000 travel advisors and industry leaders. Steve is the founder of Cruises & Cameras Travel Services, LLC. He has been recognized as a “2021 Top Travel Specialist” by Conde Nast Traveler magazine and a “Travel Expert Select “by the Signature Travel Network. His specialties are luxury small-ship cruises and COVID-19 safety measures, and has a doctorate in Educational Research with minors in Marketing and Quantitative Business Analysis. He’s also earned a Certificate in Epidemiology from Johns Hopkins University. Previously, he managed qualitative and quantitative research in the private & public sectors. He’s a member of the Los Angeles Press Club, and has written 13 books and hundreds of articles. His email address is firstname.lastname@example.org.