Picking through the aftermath of the volcanic ash chaos

It is unlikely that the recent volcanic ash travel chaos would have escaped you, and you may well have even been one of the thousands of Britons stranded overseas because of the erupting Icelandic volcano which grounded flights in the UK and across the world.

But now the aftermath begins, with the major issue of claiming compensation now at the fore. For those who had flights cancelled and were stranded away from home, the issue of payouts for expenses such as alternative travel arrangements and additional accommodation has been mired in controversy over a lack of clarity about what is and isn't covered by travel insurance. Much talk has in fact been made over claims being invalidated on the grounds the volcanic eruption is an "Act of God", a clause which essentially means insurers do not need to pay claims because the eruption was out of human control.

In the past few days though, many insurers have come out and confirmed that they will be honouring claims, however, payments could be minimal and many people could be left out of pocket for subsistence costs not to mention accommodation costs.

On the bright side, the Financial Ombudsman Service (FOS) has spoken out and said it may get involved and rule on disputes over terms and conditions in travel insurance policies. But, the FOS points out that from past experience, insurance providers have tended to take a reasonable approach when natural disasters occur - such as the widespread flooding in the UK a few years ago - with insurers taking a broader interpretation of exclusions as a gesture of goodwill.

The FOS is also keen to state that it is very early days, as policyholders first have to make a claim to their insurer - through its formal complaints procedure which could take weeks for a decision on the claim to be made. If it is rejected, you have the right to take your complaint to the FOS which can then enforce a judgment in your favour. So what does this mean for travel insurance going forward and will consumers be more reluctant to buy travel insurance?

Will the Chaos put Consumers off Travel Insurance?

At present, many travellers spend little time and thought on their travel insurance, seeing it as a last-minute job to tick off the to-do list - if they buy it at all. In fact, worrying figures show almost a third of holidaymakers confess to not taking out a policy, (*) and in the aftermath of the eruption, there are questions around whether more people will ditch travel insurance altogether.
Principal ombudsman at the FOS, Tony Boorman says: "For most consumers, travel insurance is a bolt-on,
but given the costs of medical treatment abroad can be extortionate, travelling without cover could quickly prove false economy."

Financial analyst, Michael Powell from Defaqto, adds: "I don't think consumers will be more reluctant to buy travel insurance, as there is still a need for cover. Although cancellation, delay and travel abandonment is the area of cover that has been called into question following the ash cloud, there are other areas, such as medical expenses, which are essential for anyone travelling abroad."

Will the fallout from the eruption mean insurance premiums get pushed up?

There are also concerns that the eruption will have an impact on travel insurance prices, with providers hiking up premiums as a result of the volume of claims. But despite the speculation, it is simply too early to tell whether the consumer will be the one who pays once the dust has settled.

"It is too soon after the event to know whether prices will increase as a result of these claims," adds Powell. "Where cover has been confirmed by insurers, claims will be made with the coming weeks - and the true extent of this event will remain unknown for some time."

Will policies improve as consumers demand more clarity?

One of the biggest issues that has been brought to light by this event is the fact there is no such thing as a standard travel insurance policy. The matter of exclusions has been brought under scrutiny as consumers have discovered their policies do not include cover for extreme weather events, say, or natural disasters. Now though, the FOS has called on the insurance industry to take the lead on ensuring policies become clearer and easier to understand, by drawing clearer distinctions on what is and isn't covered.

It is inevitable that over the next few months, consumers will be examining their insurance policies in more detail, checking the exact cover being provided. Some insures may look to review their wordings in order to provide clarity but at this early stage insurers actions are difficult to predict. In the meantime, as a consumer, the key is to check your policy carefully to ensure the cover you're purchasing meets your needs.

Will consumers be willing to pay higher premiums for peace of mind?

Part of the problem with UK travel insurance is that many premiums are so low most policies are written for "specified risks" only, and are not designed to cover "all risks." But given that many of those affected by the eruption could find themselves faced with hefty bills because of these restrictions, consumers may be increasingly willing to fork out for more expensive products that cover everything - safe in the knowledge that a comprehensive policy will give them complete peace of mind.