Immigration: EIOPA Says Travel Insurance Products Remain Valuable for Costumers, Warns of Costumer Protection Issues

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The European Insurance and Occupational Pensions Authority (EIOPA) has identified serious customer protection issues in the travel insurance market.

In a report published this week called “Thematic Review on Costumer Protection Issues in Travel Insurance”, the EIOPA expresses its concerns that while the travel insurance sector is facing important changes with new opportunities, the current problems and new risks are heightening.

“With economic recovery, in the aftermath of the financial crisis, coupled with decreasing travel costs, travelers’ numbers have been growing each year. This has led to growth in the travel insurance market,” a press release on the report reads.

The report highlights problems as rising charges, the exploitation of behavioral biases when selling online travel insurance policies, and the potential loss of product value and features. Coverage, denied claims, unclear and conflicting terms and conditions are other trends in disfavor of costumers.

While the travel insurance market as a whole does not appear to face a general market failure, since its products remain valuable for travelers, there are still risks of costumer harm due to problematic business models with remuneration structures based on extremely high commission levels carrying.

“[There is] strong potential of poor value for money for costumers due to some insurers paying extremely high commissions to distributors, in some cases significantly more than 50% of the premium. For example in one case, the insurer paid 5.5 times more in commissions to distributors than costumers received back in claims, with commission level of 77% of the premium paid by costumers. Although the average commissions in travel insurance are around 24% of the gross written premium (GWP),” the press release elaborates.

The report also found that the conduct risks have been increased due to new market players selling travel insurance products online as an ancillary activity, i.e. airline and ferry companies, price comparison websites, websites, aggregators, and similar.

In addition, there are a high number of costumers harmed by the potential high degree of dismissed claims due to no pre-contractual medical screening. The press release estimates that around 70% of insurers do not include pre-existing medical conditions in the coverage of travel insurance products.

A Warning to Insurers and Insurance Intermediaries to Tackle High Commissions for Their Products

As a result, the EIOPA has also issued a Warning to the Travel Insurance Industry as a supervisory response on the issues found, calling on the companies to tackle high charges for their products. The warning says that intermediaries should assess their distribution agreements to make sure that they are capable to act fairly and professionally in compliance with the best interest of their customers.

It, however, warns that the EIOPA and NCAs will increase their risk-based supervision of insurance undertakings and insurance intermediaries, in particular in the national markets where risks are identified, including monitoring the market for ancillary insurance products.

“NCAs will, where it is necessary, exercise their supervisory powers, including investigatory powers and powers to impose sanctions for failures to comply with the conduct of business requirements set out in the IDD including the duty to act in the best interest of customers and to not pay or receive remuneration that conflicts with this duty,” it warns.

EIOPA has based its report and warning on research it conducted by issuing a questionnaire to 201 insurance undertakings operating in 29 European Countries. The National Competent Authorities sent the questionnaire to undertakings representing about 60% of the total gross written premiums of the travel insurance line of business in the national market.

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