The Future of Travel Insurance and the Tourism Industry During COVID-19

Source: Jason Lee | Reuters via Growacorns.com

Source: Jason Lee | Reuters via Growacorns.com

According to the UN World Trade Organization, in 2018, tourism generated 29% of the world’s service exports (1.7 trillion USD) from tourism receipts and passenger transport. However, countries both with and without COVID-19 have placed travel bans on foreigners to slow the spread of the virus, crippling this vital part of the global economy. To revitalize this industry, federal governments can fill in gaps left by private travel insurance companies to encourage safe travels. 

Several of the hardest-hit countries are also the most-visited, including the US, Mexico, the UK, Spain, Italy, Germany, France, and China. Because of the high case numbers, travel bans have been placed on people coming from these countries, which has a significant impact on the travel industry. The US, for example, bans people from China, the EU, UK, and Brazil, among other countries, preventing 15% of the normal travelers from entering. In addition, according to a letter sent by the US Travel Association, “Travel, which supported employment for one in 10 Americans before the pandemic, has already lost more than half of the 15.8 million jobs our industry supported in 2019—more than a third of the total U.S. jobs lost to this pandemic. The drop in travel-related spending is projected to cost the U.S. economy $1.2 trillion by the end of this year. In short, there can be no broader economic recovery without a recovery in travel.”

COVID-19 has raised risks associated with travel, starting from the modes of travel. Air travel requires time spent standing in security lines and airport terminals with frequently-touched surfaces. The flight itself also poses significant challenges to social distancing mandates. Even with booking flights, travelers will encounter last-minute cancellations because of the receiving-country’s travel bans. When people get to their destinations, they then must consider COVID-19 precautions at every location visited, including their living accommodations, activities, and restaurants. If they do get sick, they risk visiting hospitals that don’t accept their medical insurance, and risk being unable to find a suitable place to isolate.

Source: NHAC NGUYEN/AFP via USA Today

Source: NHAC NGUYEN/AFP via USA Today

Typically, people buy travel insurance to mitigate risks when visiting places outside of their home country. Most people buy the broadest form of coverage, the vacation plan, which covers cancelled trips, medical emergencies, and lost baggage. This insurance is bought for short-term trips, which may become more common as international travel picks up again after the pandemic. Before COVID-19, people were more likely to travel both domestically and abroad to visit new destinations. Now, during the pandemic, many trips are domestic for the primary purpose of visiting family members. This lowers exposure time to others during travel and during the “vacation” period.  Only 23% of those surveyed expect to buy travel insurance for these trips during COVID-19. 

As more borders open up, people are more willing to buy traveler’s insurance. However, the current state of traveler’s insurance may not be enough to cope with the aforementioned pandemic-induced risks. Insurance companies are struggling to keep up with spiked demand - people are buying more policies, much earlier than usual, to protect planned trips from future COVID-19 disruptions. Additionally, many travel insurance companies currently do not cover expenses related to pandemics or pre-existing medical conditions, which applies to cancellations from government shutdowns, travel bans, or COVID-19 medical costs. The uneven distribution of coverage increases confusion when consumers attempt to buy traveler’s insurance. Some travel insurance companies, like Allianz, are even actively encouraging people not to buy insurance plans given the unpredictability of the situation. Other travel insurance companies, such as Seven Corners, are offering special coverage specifically for COVID-19 related costs.

To restimulate the travel industry and to decrease reliance on travel insurance companies for taking on risks associated with COVID travels, federal governments could offer specific coverage for COVID-related costs, filling in gaps left by private travel insurance companies. Because regulating traveler’s insurance can be complex - in the US alone, debates on how much the federal or state governments can intervene in regulatory standards still rage - federal governments could make their own ‘travel insurance’ policies to increase people’s confidence in traveling safely, which would increase demand to travel and stimulate the tourism industry. 

Before COVID, federal governments marketed their tourism industry through official travel websites highlighting “what to do” and “where to go” in that country. Now, these websites have a new section: to state travel restrictions and what the country has done to ensure safety of its citizens, and by extension, its travelers. Some countries are able to use their safety precautions as a marketing tactic to bring in more travelers. For example, Thailand, which has 22% of its GDP coming from tourism, uses its relatively low case numbers and deaths, as well as its numerous safety measures against COVID, to encourage travel to and within the country.

Source: International Health and Travel Insurance Journal

Source: International Health and Travel Insurance Journal

By setting up their own travel insurance plans, federal governments could market these plans alongside preexisting COVID safety measures to bring in more tourists. For one, the insurance plans could cover costs currently associated with travel during the pandemic, such as finding a place to quarantine for two weeks upon arrival. We can apply this to Spain, which requires travelers to self-quarantine for two weeks, but at the traveler’s expense. To make travel more accessible, Spain could sell policies that would insure people’s living accommodation costs, in case such accommodations become suddenly unavailable. 

Another gap in private insurance companies is the accessibility and payment for COVID-19 testing in the host country. The US Travel Association’s letter to the US government demanded the government to invest resources into the tourism industry, including increasing the accuracy, speed, and accessibility of COVID testing for travelers. Increased testing would allow the federal government to protect public health and accelerate economic recovery, determine whether reopening is safe or economic relief is needed, and restore traveler confidence, thus generating travel demand. This proposed travel insurance plan could offer free testing upon arrival, and free access to more tests during their stay.

Federal governments have a responsibility to protect the public health and safety of its citizens, which includes ensuring that its economy can support these citizens. Instead of relying solely on private insurance companies with inconsistent policies regarding COVID-19, by providing additional incentives to boost the tourism industry, federal governments can ensure a faster economic recovery in the long run.