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$tuff	
  Happens:	
  Airlines	
  Benefit	
  Handsomely	
  From	
  the	
  
Unexpected	
  …	
  and	
  ...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   2	
  
	
  
Acknowledgments	
  
This	
  report	
  wa...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   3	
  
Table	
  of	
  Contents	
  
Introduction	
  ....
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   4	
  
Introduction	
  
	
  
Life	
  is	
  full	
  o...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   5	
  
To	
  address	
  the	
  linked	
  issues	
  o...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   6	
  
I. Cancellation	
  and	
  Change	
  Fees	
  H...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   7	
  
cancellation/change	
  fees,	
  the	
  indust...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   8	
  
	
  
	
  
Source:	
  Bureau	
  of	
  Transpor...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   9	
  
expensive	
  than	
  a	
  non-­‐refundable	
 ...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   10	
  
III. Marketing	
  of	
  Travel	
  Insurance	...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   11	
  
Every	
  airline	
  Web	
  site	
  that	
  N...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   12	
  
to	
  Los	
  Angeles	
  (including	
  one	
 ...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   13	
  
	
  
	
  
The	
  $37.85	
  cost	
  of	
  the...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   14	
  
	
  
The	
  text	
  in	
  this	
  pop-­‐up	
...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   15	
  
Expedia	
  for	
  a	
  U.S.	
  Airways-­‐ope...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   16	
  
Finally,	
  travelers	
  booking	
  flights	...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   17	
  
cancellation/change	
  fees,	
  there	
  is	...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   18	
  
because	
  it	
  was	
  never	
  started.	
 ...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   19	
  
were	
  not	
  related	
  to	
  his	
  curre...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   20	
  
(Travel	
  Guard	
  Group,	
  Inc.)	
  has	
...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   21	
  
resolution	
  of	
  consumer	
  complaints	
...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   22	
  
large	
  font	
  and	
  plain	
  language	
 ...
National	
  Consumers	
  League	
  	
   	
   $tuff	
  Happens	
  
	
   23	
  
5. Congressional	
  oversight	
  hearings	
 ...
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Stuff Happens: NCL explores airline travel insurance

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An in-depth report examines airline travel insurance and concludes often times this small add-on purchase is a sham.

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Stuff Happens: NCL explores airline travel insurance

  1. 1.           $tuff  Happens:  Airlines  Benefit  Handsomely  From  the   Unexpected  …  and  Consumers’  Fears  About  It         September  23,  2013                            
  2. 2. National  Consumers  League       $tuff  Happens     2     Acknowledgments   This  report  was  written  by  John  Breyault,  Vice  President  of  Public  Policy,   Telecommunications  and  Fraud  for  the  National  Consumers  League.  Major   assistance  was  provided  by  NCL  staff,  especially  public  policy  interns  Sam  Hamer   (Yale  ’14),  Robert  “R.J.”  Smith  (IUP  ’14)  and  Heather  Yoon  (Brandeis  ’15).       About  the  National  Consumers  League   The  National  Consumers  League,  founded  in  1899,  is  America's  pioneer  consumer   organization.  Our  mission  is  to  protect  and  promote  social  and  economic  justice  for   consumers  and  workers  in  the  United  States  and  abroad.  For  more  information,  visit   www.nclnet.org.                               National  Consumers  League   1701  K  Street,  NW  Suite  1200   Washington,  DC  20006   Phone:  (202)  835-­‐3323   Fax:  (202)  835-­‐0747   http://www.nclnet.org     ©  2013  National  Consumers  League.  All  rights  reserved.  
  3. 3. National  Consumers  League       $tuff  Happens     3   Table  of  Contents   Introduction  ..............................................................................................................................  4   I.   Cancellation  and  Change  Fees  Have  Become  Significant  Profit  Centers  for   the  Airline  Industry  ..........................................................................................................  6   II.   Refundable  Tickets  Are  Not  Affordable  for  Most  Consumers  ............................  7   III.  Marketing  of  Travel  Insurance  Online  Does  Not  Give  Consumers  Adequate   Information  ......................................................................................................................  10   IV.  Complaints   Suggest   a   High   Degree   of   Consumer   Confusion   and   Anger   Regarding  Limitations  of  Travel  Insurance  ..........................................................  17   V.   Lack  of  Regulation  of  the  Travel  Insurance  Industry  at  State  and  Federal   Levels  Leaves  Consumers  Vulnerable  .....................................................................  20   VI.  Common-­‐Sense  Reforms  Should  Address  the  Lack  of  Consumer  Protections   in  the  Airline  Travel  Industry  ....................................................................................  21   Conclusion  ...............................................................................................................................  23                      
  4. 4. National  Consumers  League       $tuff  Happens     4   Introduction     Life  is  full  of  uncertainties.  When  it  comes  to  airline  travel,  this  uncertainty  can   quickly  become  costly  for  consumers.  Earlier  this  year,  cancellation/change  fees  on   the  legacy  U.S.  airlines  increased  to  $200  per  ticket  for  domestic  flights.  These  fees   have  become  a  growing  revenue  source  for  the  industry.  In  2012,  the  industry   collected  more  than  $2.5  billion  in  such  fees,  an  increase  of  more  than  176%  since   2007.1  Many  travelers  approach  buying  an  expensive  plane  ticket  with  fear  and   loathing,  knowing  that  if  something  unexpected  happen,  they  could  lose  a  large   chunk  of  money.  An  unexpected  hospital  visit,  for  example,  could  easily  lead  to  $800   or  more  in  cancellation  or  change  fees  for  a  family  of  four  travelling  together.       As  cancellation  fees  increase,  consumers  appear  to  be  increasingly  turning  to  travel   insurance  as  a  hedge  against  the  risk  of  change  fees  and  the  alternative  of  expensive   refundable  tickets.  From  2006-­‐2012,  sales  of  travel  insurance  and  travel  assistance   products  increased  by  approximately  46%  to  nearly  $1.9  billion.  Trip   cancellation/interruption  policies  -­‐-­‐  the  type  most  often  marketed  to  consumers  by   airline  Web  sites  and  online  travel  agencies  -­‐-­‐  accounted  for  94%  of  travel  insurance   premiums  in  2012,  an  increase  of  more  than  22%  since  2006.       Unfortunately,  the  marketing  of  travel  insurance  through  airline  and  online  travel   agency  Web  sites  too  often  relies  on  misleading  language  and  dense  policy   descriptions.  Consumers  often  find  that  coverage  they  thought  they  had  purchased   to  protect  them  in  the  event  of  a  cancellation  is  denied.  Policies  are  often  riddled   with  exclusions,  including  for  pre-­‐existing  conditions  and  many  other  reasons.  This   has  generated  a  significant  amount  of  consumer  outrage.                                                                                                                     1  Bureau  of  Transportation  Statistics,  Schedule  P-­‐1.2  
  5. 5. National  Consumers  League       $tuff  Happens     5   To  address  the  linked  issues  of  onerous  cancellation  fees,  unaffordable  refundable   tickets  and  misleading  travel  insurance  marketing,  the  National  Consumers  League   is  recommending  a  series  of  reforms  to  protect  consumers.  These  include:     • Congressional  oversight  hearings  examining  the  windfall  that  the  airline  and   travel  insurance  industries  have  realized  from  the  startling  increase  in   cancellation  fees,  the  disparity  between  refundable  and  non-­‐refundable   ticket  prices  and  the  correlating  increase  in  the  sale  of  often  useless  airline   flight  cancellation  insurance;     • Moving  to  a  tiered  cancellation/change  fee  pricing  model  based  on  the   proximity  of  the  travel  date.  Flights  changed  or  cancelled  more  than  5-­‐10   days  in  advance  of  the  flight  should  incur  no  fee;     • Allowing  consumers  to  transfer  a  ticket  to  another  passenger  without   incurring  a  cancellation/change  fee;     • Requiring  travel  insurance  issuers  to  report  the  loss  ratio,  i.e.  the  percentage   of  premium  claims  paid  out  to  customers  buying  insurance;     • Requiring  travel  insurance  policies  to  be  marketed  in  clear,  non-­‐misleading   language;  and     • Eliminating  standby  fees  for  travellers  who  miss  a  flight  and  elect  to  fly   standby  the  same  day  because  there  is  virtually  no  cost  to  the  airline  to  fill  an   empty  seat.      
  6. 6. National  Consumers  League       $tuff  Happens     6   I. Cancellation  and  Change  Fees  Have  Become  Significant  Profit   Centers  for  the  Airline  Industry     The  fact  that  events  happen  beyond  our  control  today  results  in  a  windfall  for  the   airline  industry.  According  to  the  U.S.  Department  of  Transportation,  the  top  14   domestic  airlines  collected  more  that  $2.5  billion  in  cancellation  and  change  fees  in   2012.  This  represents  an  increase  of  more  than  176%  since  2007,  when  the  industry   reported  slightly  more  than  $915  million  in  such  fees.         Source:  Bureau  of  Transportation  Statistics,  Schedule  P-­‐1.2     Some  members  of  the  airline  industry  appear  to  depend  on  these  ancillary  fees,  such   as  cancellation/change  fees,  baggage  fees,  seat  selection  fees  and  other  fees  to   maintain  profitability.2  In  addition  to  the  more  than  $2.5  billion  in  revenue  from                                                                                                                   2  Mutzabaugh,  Benjamin.  “Airlines  collected  record  baggage  fees  in  2012,”  USA  Today.  May  15,  2013.   Online:  http://www.usatoday.com/story/todayinthesky/2013/05/14/airlines-collected-record-baggage-fees- in-2012/2158983/ (“The airlines took in $159.5 billion in revenue last year and had expenses of $153.6 billion, according to the government. That 3.7% profit margin comes entirely from the baggage and change fees.”) 0   500000   1000000   1500000   2000000   2500000   3000000   2007   2008   2009   2010   2011   2012   Year   U.S.  Airline  Cancellation/Change  Fee   Revenue  -­‐  Reaches  $2.5  Billion  in  2012   Revenue   (in   millions   of   dollars)  
  7. 7. National  Consumers  League       $tuff  Happens     7   cancellation/change  fees,  the  industry  collected  more  than  $3.43  billion  in  baggage   fees  in  2012  alone.3     Domestic  airlines  have  been  flying  with  progressively  fewer  unsold  seats.  In  2002,   the  average  load  factor  for  a  domestic  flight  was  70.41%.  By  2012,  average  load   factors  reached  83.25%.4    The  airline  industry  claims  that  higher  change  fees  are  a   way  to  protect  against  revenue  dilution.5  However,  given  increasing  load  factors,  it   seems  dubious  that  the  uncertainty  of  consumer  itineraries  is  responsible  for  large   blocks  of  unsold  seats.  Indeed,  on  a  full  flight,  if  a  consumer  has  to  change  her  plans,   and  informs  the  airline,  that  newly  available  seat  becomes  available  for  sale.  Since   tickets  sold  closer  to  the  departure  date  are  typically  priced  higher  than  tickets  sold   well  in  advance,  the  airline  can  profit  twice  over  from  a  cancellation  –  once  from  the   cancellation/change  fee,  and  again  from  the  subsequent  resale  of  the  same  seat.       II. Refundable  Tickets  Are  Not  Affordable  for  Most  Consumers     Cancellation  fees  are  an  unavoidable  fact  of  air  travel  for  consumers  who  have  a   change  of  plans.  One  reason  for  this  is  the  large  disparity  in  price  between   traditional  “restricted”  fare  tickets  and  refundable  tickets  (also  known  as  “full  fare”   or  “unrestricted”  tickets).  Nonrefundable  restricted-­‐fare  tickets  comprise  the  lion’s   share  of  ticket  sales  for  U.S.  air  travelers.  Since  1993,  “restricted”  fare  tickets  made   up  more  than  80%  of  all  ticket  sales  across  all  fare  classes  (coach,  business,  and  first   classes  combined).  6                                                                                                                   3  DOT  Bureau  of  Transportation  Statistics.  “Baggage  Fees  by  Airline  2012,”  Online:   http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/subject_areas/airline_information/baggage_ fees/html/2012.html     4 Bureau of Transportation Statistics T-100 Segment data. 5  Elliott,  Christopher.  “What’s  Behind  All  Those  Airline  Change  Fees?”  Frommers.com.  November  1,   2010.  Online:  http://www.frommers.com/articles/7070.html#ixzz2W1mopAIJ     6  Bureau  of  Transportation  Statistics.  Origin  and  Destination  Survey:  DB1BCoupon.  (Accessed   September  4,  2013)  Online:  http://1.usa.gov/150g5tf    
  8. 8. National  Consumers  League       $tuff  Happens     8       Source:  Bureau  of  Transportation  Statistics.  Origin  and  Destination  Survey:  DB1BCoupon     There  appear  to  have  been  significant  fluctuations  in  the  sales  of  refundable   unrestricted  fare  tickets.  In  1998,  unrestricted  fare  tickets  made  up  19.48%  of  all   ticket  sales.  Sales  of  such  tickets  gradually  decreased  until  in  2009  when  only  5.16%   of  tickets  sold  were  refundable.  Since  2009,  unrestricted  ticket  sales  have  increased   progressively.  From  2011-­‐2012,  for  example,  sales  of  unrestricted-­‐fare  tickets  more   than  doubled  to  18.62%  of  all  tickets  sold.  Whether  this  is  due  to  consumers   increasingly  opting  for  such  tickets  in  the  face  of  increasing  cancellation/change   fees  is  unclear.  However,  it  appears  that  there  is  at  least  a  correlation  between  the   two  market  trends.     What  is  clear  is  that  unrestricted,  refundable  tickets  are  significantly  more   expensive  than  restricted,  non-­‐refundable  tickets.  An  NCL  analysis  of  the  least   expensive  refundable  and  non-­‐refundable  fares  available  for  the  top  100  air   corridors  in  the  U.S.7  found  that  on  average,  a  refundable  ticket  is  350%  more                                                                                                                   7  Tomer,  Adie  and  Puentes,  Robert.  “Expect  Delays:  An  Analysis  of  Air  Travel  Trends  in  the  United   States,”  Metropolitan  Policy  Program.  Brookings  Institution.  (October  2009).  Appendix  3  “Top  100   0.00%   20.00%   40.00%   60.00%   80.00%   100.00%   Restricted-­‐Fare  Tickets  Dominate   Airline  Ticket  Sales   Restricted  Tickets  (%  of  total  passengers)   Unrestricted  Tickets  (%  of  total  passengers)  
  9. 9. National  Consumers  League       $tuff  Happens     9   expensive  than  a  non-­‐refundable  ticket.8  Given  this  price  difference,  it  is  not   surprising  that  refundable  tickets  make  up  a  comparatively  small  percentage  of  total   U.S.  ticket  sales.  The  cost  is  simply  prohibitive  for  most  consumers.       Source:  National  Consumers  League  (2013)                                                                                                                                                                                                                                                                                                                                                 Corridors”,  pg.  28-­‐30.  Online:   http://www.brookings.edu/~/media/research/files/reports/2009/10/08%20air%20travel%20to mer%20puentes/1008_air_travel_report.pdf     8  Methodology:  NCL  conducted  online  searches  on  each  of  the  top  100  U.S.  air  corridors  as  defined  by   Brookings  using  one  of  three  online  travel  search  engines  (Priceline.com,  Expedia.com  and   Travelocity.com)  as  well  as  Southwest.com  (because  Southwest  Airlines  does  not  provide  its  data  to   third-­‐party  online  travel  search  engines).  For  each  route,  two  searches  were  conducted;  one  for  the   lowest  restricted  fare  and  a  second  for  the  lowest  unrestricted  fare.  Searches  were  conducted  on   September  5,  2013  for  flights  on  October  7,  2013  (30-­‐day  advance  purchase)  for  one-­‐way  coach-­‐class   tickets.  Where  possible,  searches  encompassed  all  airports  in  a  metro  area  (e.g.  “WAS”  airport  code   for  all  Washington,  DC  airports  or  “NYC”  for  all  New  York  City  area  airports).  When  a  search  engine   did  not  allow  for  region-­‐wide  searches,  the  airport  closest  the  city  centers  was  chosen  (e.g.  SFO  for   San  Francisco-­‐area  airports,  LGA  for  New  York  City-­‐area  airports).  In  several  cases,  Southwest  only   serves  one  airport  in  a  city  (e.g.  MDW  in  Chicago,  Islip,  NY  for  the  Boston-­‐New  York  corridor)  so  only   flights  to  those  airports  were  chosen.  The  percentage  difference  between  the  lowest  restricted  and   unrestricted  fare  for  a  particular  corridor  was  then  calculated.  The  350%  figure  is  the  average  of   these  percentage  differences  for  the  top  100  corridors.   56   20   10   8   6   0   10   20   30   40   50   60   0-­‐249%   250-­‐499%   500-­‐749%   750-­‐1000%   >1000%   No.  of  Routes   Non-­‐restricted/Restricted  Fare  Difference  %   %  Differences  Between  Non-­‐Restricted  &   Restricted  Fares  on  Major  U.S.  Air  Routes  
  10. 10. National  Consumers  League       $tuff  Happens     10   III. Marketing  of  Travel  Insurance  Online  Does  Not  Give   Consumers  Adequate  Information     The  trend  towards  rising  cancellation  fees  has  been  widely  reported,  prompting   calls  for  reform.9  Less  well  understood,  however,  is  that  growing  revenue  from   travel  insurance  sales  is  also  contributing  to  airline  industry  bottom  lines.  This   amounts  to  a  double-­‐whammy  on  consumers.  As  cancellation  fees  have  increased,   consumer  may  feel  compelled  to  buy  insurance.  In  2012,  148  million  American   insured  purchased  some  form  of  travel  insurance  or  travel  assistance  product,   spending  $1.9  billion  on  such  policies  and  services,  an  increase  of  more  than  46%   since  2006.10  Trip  cancellation/interruption  policies,  the  type  most  often  marketed   to  consumers  by  airlines  and  travel  Web  sites,  accounted  for  94%  of  travel   insurance  premiums  in  2012,  an  increase  of  nearly  22%  since  2006.11       0.00%$ 10.00%$ 20.00%$ 30.00%$ 40.00%$ 50.00%$ 60.00%$ 70.00%$ 80.00%$ 90.00%$ 100.00%$ $0$ $200$ $400$ $600$ $800$ $1,000$ $1,200$ $1,400$ $1,600$ $1,800$ $2,000$ 2004$ 2006$ 2008$ 2010$ 2012$ U.S.$Travel$Insurance$Sales$(in$Millions$$)$ Trip$Cancella8on/Interrup8on$Policies$Becoming$a$Larger$Part$of$Growing$U.S.$Travel$Insurance$Market$ Travel$Insurance$&$Assistance$Products$Annual$Sales$ Tip$CancellaEon/Insurance$Packages$(%$of$total$sales)$ Source:  U.S.  Travel  Insurance  Association,  Travel  Insurance  Market  Survey  (2004-­‐2012)                                                                                                                       9  See  e.g.  Trejos,  Nancy.  “Schumer  asks  airlines  to  reverse  flight  change  fees,”  USA  Today.  May  20,   2013.  Online:  http://www.usatoday.com/story/todayinthesky/2013/05/20/airline-­‐flight-­‐change-­‐ fee-­‐charles-­‐schumer/2326243/     10  U.S.  Travel  Insurance  Association.  Travel  Insurance  Market  Survey  (2004-­‐2012).  Online:   http://www.ustia.org/documents/travel-­‐insurance-­‐sales-­‐show-­‐steady-­‐increase-­‐9-­‐12-­‐11.pdf     11  Ibid.  
  11. 11. National  Consumers  League       $tuff  Happens     11   Every  airline  Web  site  that  NCL  reviewed  includes  the  option  to  purchase  travel   insurance  as  part  of  their  ticketing  checkout  process.  These  policies  are  often   aggressively  marketed  to  consumers.  This  should  not  be  surprising  since  airlines   and  travel  agencies  receive  commissions  on  the  sale  of  travel  insurance  policies.   Commissions  range  from  around  10%12  to  more  than  40%13  of  the  cost  of  the  policy.     Unfortunately,  consumers  being  offered  travel  insurance  are  often  not  provided  the   information  necessary  to  make  an  informed  buying  decision.  This  is  largely  due  to   confusing  messaging  on  major  airline  ticketing  Web  sites  where  consumers  are  led   to  believe  that  travel  insurance  covers  more  unforeseen  circumstances  than  it   actually  does.     Research  by  NCL  has  shown  that  potentially  misleading  marketing  of  travel   insurance  policies  is  widespread  in  the  airline  industry.  Significant  issues   encountered  during  the  ticket-­‐buying  process  on  multiple  airline  Web  sites  and   online  travel  agencies  included:     • Use  of  vague  terms  such  as  “worry-­‐free,”  “unforeseen  expenses,”  and  “and   more”  without  adequate  disclosure  of  significant  plan  limitations;   • Reliance  on  misleading  testimonials;  and   • Requirement  of  multiple  clicks  before  dense,  multi-­‐page  policy  limitations   information  can  be  found.     For  example,  NCL  researchers  reviewing  Spirit  Air’s  Web  site  (www.spirit.com)   were  offered  a  $434.79  ticket  price  for  a  coach-­‐class  one-­‐way  ticket  from  Baltimore                                                                                                                   12  Saltzman,  Dori.  “Sell  trip  insurance  for  peace  of  mind,  yours  &  theirs,”  Travel  Market  Report.   September  12,  2011.  Online:  http://www.travelmarketreport.com/retail?articleID=6300&LP=1   (“Commission levels on insurance sales are high – typically 20% to 28% from third party suppliers, and 10% to 12% from travel suppliers.”) 13 Travel Professionals International. “TPI Investments & Commissions,” http://www.tpi.ca/associate_investment_commissions.asp    
  12. 12. National  Consumers  League       $tuff  Happens     12   to  Los  Angeles  (including  one  carry-­‐on  bag)  on  August  24,  2013.  The  following  offer   was  presented  during  the  ticket  checkout  process:         Clicking  through  to  the  “Description  of  Coverage”  or  “Show  Coverage”  directs  the   prospective  ticket-­‐buyer  to  a  nine-­‐page  PDF  of  Spirit  Airlines’  “Description  of   Coverage”  for  the  policy,  which  is  underwritten  by  Travel  Guard.14  This  document   lays  out  the  schedule  of  benefits  for  this  particular  flight  and  lists  important   definitions  and  exclusions.  For  example,  if  the  insured  flyer’s  spouse  or  parent  died   prior  to  the  trip  and  the  death  was  linked  to  a  pre-­‐existing  medical  condition,  the   insurer  would  not  be  required  to  pay  a  claim  under  this  policy.     It  is  for  this  reason  that  the  use  of  the  term  “worry-­‐free,”  combined  with  a  relatively   low  price  of  coverage  ($14,  or  approximately  3%  increase  in  total  ticket  price),  is   troublesome.  The  likely  result  is  that  many  consumers  simply  check  the  box  to   purchase  insurance  without  reading  and  understanding  the  policy,  thinking  they   have  bought  peace  of  mind.  Too  often,  consumers  learn  too  late  that  their  reason  for   cancellation  is  not  covered  and  they  can’t  collect  on  a  claim.     This  problem  is  not  limited  to  a  single  airline.  For  a  one-­‐way  flight  from  Washington,   DC  (Reagan  National)  to  Los  Angeles  on  August  24,  NCL  researchers  were  quoted  a   base  fare  of  $630.80  on  Delta  Airlines’  Web  site  (www.delta.com).  At  the  end  of  the   checkout  process,  Delta  presented  the  following  travel  insurance  offer:                                                                                                                     14  Accessed  online  (August  23,  2013):  http://www.travelguard.com/spirit/domestic.pdf    
  13. 13. National  Consumers  League       $tuff  Happens     13       The  $37.85  cost  of  the  travel  insurance  policy,  underwritten  by  Allianz  Global   Assistance,  represented  an  approximately  6%  increase  on  the  total  cost  of  the  ticket.   This  offer  is  again  problematic  in  a  number  of  ways.       First  “Peace  of  mind  is  only  a  click  away,”  suggests  that  all  a  prospective  ticket-­‐buyer   must  do  is  click  the  “Yes,  I’d  like  to  purchase  trip  insurance…”  button  to  receive   complete  coverage.  Second,  after  describing  four  specific  benefits  of  the  policy,  it  is   likely  unclear  to  the  typical  consumer  what  “Limitations  apply”  means.  Clicking  on   the  “Learn  More”  link  leads  to  the  following  pop-­‐up  window:      
  14. 14. National  Consumers  League       $tuff  Happens     14     The  text  in  this  pop-­‐up  window  is  again  promotional  in  nature,  detailing  the   amounts  of  coverage  and  benefits  of  the  plan,  such  as  concierge  and  24-­‐hour  hotline   in  addition  to  the  monetary  benefits  and  a  “  Satisfaction  Guarantee.”  The  pre-­‐ existing  medical  condition  exclusion  is  noted,  but  only  in  vague  terms.  To  find  the   full  details  of  the  policy,  the  ticket-­‐buyer  is  required  to  click  through  a  second  time   on  the  “terms,  conditions  and  exclusions,”  link  to  access  a  22-­‐page  “Certificate  of   Insurance”  document  prepared  by  Allianz  Global  Assistance.15     Example  of  exclusions  in  travel  insurance  policies  reviewed  by  NCL  included  losses   stemming  from:     • Existing  medical  conditions  affecting  the  traveller,  a  travelling  companion  or   a  family  member;   • Pregnancy  and  childbirth;   • Scuba  diving  without  a  dive  master;   • Participating  in  or  training  for  any  amateur  sporting  competition;   • Being  fired  if  the  termination  is  the  traveller’s  or  the  traveller’s  companion’s   fault.     These  and  other  exclusions  give  carte  blanche  to  insurers  to  avoid  paying  out  claims.   For  example,  if  a  family  purchased  a  travel  insurance  policy  prior  to  departing  on   vacation  and  their  child  broke  an  arm  at  soccer  practice  and  couldn’t  travel,  a  claim   could  be  denied  under  the  “training  for  any  amateur  sporting  competition,”   exclusion.     Potentially  misleading  marketing  of  travel  insurance  also  occurs  on  online  travel   Web  sites.  For  example,  when  NCL  researchers  attempted  to  book  a  one-­‐way  flight   for  August  24  from  Washington,  DC  (Reagan  National)  to  Los  Angeles  through                                                                                                                   15  Accessed  online  (August  23,  2013):   https://www.allianztravelinsurance.com/documents/library/certs/TI_101_08_C_V2.pdf    
  15. 15. National  Consumers  League       $tuff  Happens     15   Expedia  for  a  U.S.  Airways-­‐operated  flight,  we  were  quoted  a  fare  of  $418.30.  At  the   end  of  the  checkout  process,  we  were  presented  with  the  following  travel  insurance   offer:         Stonebridge  Casualty  Insurance  Company  underwrites  the  policy.  Full  details  of  the   policy  are  available  on  the  Expedia  Cancellation  Plan  Web  site16  and  in  an  eight-­‐page   brochure.17  Multiple  instances  of  the  number  “100%”  and  the  phrases  “peace  of   mind”  and  “Don’t  miss  out!”  encourage  consumers  to  click  the  “Yes”  button  without   fully  exploring  the  significant  limitations  on  this  plan.  In  addition,  text  stating  “No,  I   don’t  need  travel  protection  and  understand  it  isn’t  available  after  booking,”   suggests  that  consumers  can  only  purchase  travel  insurance  for  the  selected  flight   during  the  online  checkout  process.  In  fact,  consumers  are  free  to  purchase  travel   insurance  policies  independently  of  the  online  ticket  purchase  process  from  a  travel   insurance  agent.                                                                                                                     16  Accessed  online  (August  24,  2013):   http://www.expedia.com/daily/promos/travel_protection_plans/flight_cancellation.asp     17  Accessed  online  (August  24,  2013):   http://media.expedia.com/media/content/expus/graphics/other/insurance/expedia_flight_cancella tion_plan.pdf    
  16. 16. National  Consumers  League       $tuff  Happens     16   Finally,  travelers  booking  flights  on  Alaska  Airlines  are  presented  with  the  following   offer  for  travel  insurance:         Note  the  text,  citing  a  2012  USA  Today  article18,  which  states  “Travel  insurance  is   ‘peace  of  mind’  and  doesn’t  have  to  cost  a  lot.”  This  quote,  which  was  also  featured   in  a  number  of  other  airlines’  travel  insurance  offerings,  suggests  that  USA  Today   has  endorsed  travel  insurance  as  a  good  idea  for  consumers.  In  fact,  the  text  is  lifted   from  a  quote  by  Sandy  Wick,  owner  of  Four  Seasons  Travel  in  Indianapolis,  Indiana   and  Kellie  Bishop,  “chief  possibility  officer”  at  Travel  Leaders/Cosmopolitan  Travel   in  Charlottesville,  Virginia.  Given  the  fact  that  both  Wick  and  Bishop  are  travel   agents,  and  likely  receive  significant  commissions  from  the  sale  of  travel  insurance   policies,  they  can  hardly  be  considered  disinterested  parties.  Further,  USA  Today   itself  has  in  no  way  endorsed  travel  insurance  as  an  option  for  consumers.     NCL  researchers  reviewed  the  Web  sites  of  a  dozen  U.S.  carriers,  including  the  four   major  domestic  airlines  as  well  as  major  online  travel  agencies.  This  review  found   that  misleading  practices  in  the  marketing  of  travel  insurance  policies  are   widespread.  Given  increasing  sales  of  travel  insurance,  potentially  driven  by  rising                                                                                                                   18  Yancey,  Kitty  Bean  and  Bly,  Laura.  “Travel  agents’  tips  for  stormy  weather  journeys,”  USA  Today.   October  30,  2012.  Online:  http://www.usatoday.com/story/dispatches/2012/10/30/hurricane-­‐ sandy-­‐travel-­‐agent-­‐tips/1667173/    
  17. 17. National  Consumers  League       $tuff  Happens     17   cancellation/change  fees,  there  is  a  danger  that  misleading  marketing  of  travel   insurance  may  be  causing  consumers  to  buy  policies  under  erroneous  assumptions.   The  confusing  nature  of  travel  insurance  marketing  on  major  airline  Web  sites  only   exacerbates  the  likelihood  of  such  uninformed  purchases.       IV. Complaints  Suggest  a  High  Degree  of  Consumer  Confusion   and  Anger  Regarding  Limitations  of  Travel  Insurance     Consumer  complaints  aplenty  confirm  that  misleading  marketing  of  travel  insurance   is  a  significant  problem  for  consumers,  and  thus,  the  industry.  Catherine  Markland   of  Whitney,  Texas  relayed  the  following  story  in  March  2012:     “We  purchased  flight  insurance  with  Access  America  Insurance  -­‐-­‐  now   called  Allianz  -­‐-­‐  for  the  super-­‐saver  flights  from  Dallas  to  Miami.  In  February  I   received  an  e-­‐mail  from  Friendly  Planet  saying  that  the  tour  had  been  canceled   due  to  too  few  participants.  I  was  given  the  choice  to  receive  a  refund  or  to   schedule  another  tour  later  in  the  year.  I  decided  to  reschedule.       However,  Access  America  denied  the  claim  I  made  to  cover  the  costs  of   changing  the  American  Airlines  flights,  which  was  $137  for  each  of  us.     I  had  spoken  to  two  representatives  from  Access  America  explaining  what  had   occurred,  and  both  encouraged  me  to  file  the  claim  since  it  was  not  my  fault   that  the  trip  was  canceled.  The  process  was  time-­‐consuming.     I  have  written  a  letter  to  Access  America  asking  for  a  second  review.  I  think   Access  America  insurance  is  bogus  at  best  since  the  trip  was  interrupted  
  18. 18. National  Consumers  League       $tuff  Happens     18   because  it  was  never  started.  What  is  the  purpose  of  insurance  if  not  to  cover   the  unexpected?”19     Consumers  have  also  reported  difficulties  in  getting  their  travel  insurance  claims   paid  by  providers.  A  case  in  point  is  Jessica  Kamzik  of  Black  Rock,  Connecticut   whose  father  was  diagnosed  with  stomach  cancer  in  the  summer  of  2011.  Kamzik   cancelled  her  vacation  and  filed  a  claim  with  Access  America  Insurance  (now  doing   business  as  Allianz).  Unfortunately  for  Ms.  Kamzik,  Access  America  denied  her  claim   due  to  the  company’s  claim  that  her  father  had  a  “pre-­‐existing  condition”  that  was   not  covered  by  the  policy.     “They  refused  to  pay  based  on  what  they  say  is  a  ‘pre-­‐existing’  condition.  They   made  this  claim  based  on  a  doctor’s  note  that  was  first  sent  in,  which  stated   that  my  father  had  symptoms  two  months  prior  to  when  he  was  diagnosed.     Their  insurance  policy  says  that  if  the  client  had  symptoms  120  days  prior  to   when  the  policy  was  bought,  the  refund  was  void.     Now,  I  understood  this,  so  asked  for  verification  from  his  doctor.  His  doctor  sent   in  all  the  notes,  explicitly  stating  that  my  father  was  very  healthy  prior  to  his   cancer,  and  that  any  symptoms  he  had  were  not  necessarily  related  to  cancer.     Yet,  the  travel  insurance  company  still  refuses  to  refund  our  money.       …  I  will  continue  to  fight  this,  however,  because  I  believe  that  Access  America   will  do  everything  they  can  to  scam  buyers  out  of  their  money.  …I  went  back  to   each  of  my  father’s  doctors  and  had  them  confirm  that  my  father’s  symptoms                                                                                                                   19  Elliott,  Christopher.  “Travel  Troubleshooter:  Insurance  Doesn’t  Cover  My  Trip  Cancellation,”   Frommer’s.  March  21,  2012.  Online:  http://www.frommers.com/articles/7641.html    
  19. 19. National  Consumers  League       $tuff  Happens     19   were  not  related  to  his  current  condition  (a  terminal  illness).  Even  with  both   doctors  backing  me  up,  Access  America  refuses  to  do  the  right  thing.”20     Cheryl  Ellis  of  Lee’s  Summit,  Missouri  offered  a  similar  tale  of  a  travel  insurance   issuer  taking  advantage  of  the  “pre-­‐existing  medical  condition”  exclusion  to  deny  a   claim:     “We  booked  a  trip  to  Cancun  through  Orbitz  last  year,  and  when  we  got  to  the   last  screen  of  the  reservation,  it  offered  us  a  travel  insurance  policy  through   Access  America.  We  thought  it  would  be  a  good  idea  to  have  insurance,  so  we   bought  it.   Afterwards,  we  received  a  document  with  the  specifics  of  our  policy.  I  didn’t   read  it  because  I  didn’t  anticipate  having  to  make  a  claim.  But  I  was  wrong.   Shortly  before  our  trip,  my  mother  died  unexpectedly.  I  called  Orbitz,  which   referred  me  to  the  insurance  company.  An  Access  America  representative  told   me  to  cancel  the  trip  and  suggested  that  I  reschedule  it.  They  promised  they   would  “take  care”  of  the  claim.   A  few  weeks  later,  Access  America  denied  my  claim  for  $951,  because  my   mother  suffered  from  high  blood  pressure.  The  death  certificate  listed  the  cause   of  death  as  being  from  ‘natural  causes.’  I  didn’t  know  a  natural  cause  was  a   pre-­‐existing  medical  condition.”21   These  aren’t  isolated  cases.  The  Better  Business  Bureau  reports  that  more  513   complaints  were  investigated  against  a  single  travel  insurance  company  (Allianz   Global  Assistance)  in  the  past  three  years.22  Another  large  travel  insurance  issuer,                                                                                                                   20  Elliott,  Christopher.  “Why  doesn’t  travel  insurance  cover  dad’s  illness?”  Elliott.org.  January  16,   2012.  Online:  http://elliott.org/blog/why-­‐doesnt-­‐travel-­‐insurance-­‐cover-­‐dads-­‐illness/     21  Elliott,  Christopher.  “The  Travel  Troubleshooter:  Is  a  ‘natural  cause’  a  pre-­‐existing  condition?”   Elliott.org.  April  8,  2011.  Online:  http://elliott.org/the-­‐troubleshooter/the-­‐travel-­‐troubleshooter-­‐is-­‐ a-­‐natural-­‐cause-­‐a-­‐pre-­‐existing-­‐condition/     22  Better  Business  Bureau.  “BBB  Business  Review:  Allianz  Global  Assistance.”  Online:   http://www.bbb.org/richmond/business-­‐reviews/insurance-­‐companies/allianz-­‐global-­‐assistance-­‐ in-­‐richmond-­‐va-­‐4001660    
  20. 20. National  Consumers  League       $tuff  Happens     20   (Travel  Guard  Group,  Inc.)  has  had  204  complaints  lodged  against  it  at  the  Better   Business  Bureau  in  the  past  three  years.23         V. Lack  of  Regulation  of  the  Travel  Insurance  Industry  at  State   and  Federal  Levels  Leaves  Consumers  Vulnerable     Travel  insurance,  like  most  other  forms  of  insurance,  is  regulated  by  individual   states.  However,  regulations  vary  greatly  from  state  to  state.  For  example,  in  some   states  insurance  commissions  regulate  licensing  requirements  while  in  other  states   regulations  must  be  enacted  by  legislatures.       The  travel  industry,  led  by  the  U.S.  Travel  Insurance  Association  (UStiA)  with  the   backing  of  the  American  Society  of  Travel  Agents,  has  worked  since  2009  to   eliminate  state-­‐by-­‐state  travel  insurance  regulations  in  favor  of  a  weaker  national   standard  issued  by  the  National  Association  of  Insurance  Commissioners  (NAIC)  and   National  Conference  of  Insurance  Legislators  (referred  to  jointly  at  NAIC/NCOIL).24   This  is  part  of  a  larger  lobbying  effort  being  undertaken  in  state  legislatures  across   the  country.  For  example,  thanks  to  industry  lobbying,  travel  agents  in  California  can   now  offer  travel  insurance  without  a  state-­‐issued  license  by  operating  under  the   umbrella  of  their  travel  insurance  provider’s  license.25     Industry  efforts  to  change  regulations  do  not  appear  to  have  benefitted  consumers.   An  important  feature  of  robust  consumer  protection  is  to  provide  a  vehicle  for  the                                                                                                                   23  Better  Business  Bureau.  “BBB  Business  Review:  Travel  Guard  Group,  Inc.”  Online:   http://www.bbb.org/wisconsin/Business-­‐Reviews/insurance-­‐travel/travel-­‐guard-­‐group-­‐inc-­‐in-­‐ stevens-­‐point-­‐wi-­‐3000442/Complaints#breakdown     24  Rice,  Kate.  “Travel  insurance  regs  are  easing,  but  still  pose  peril,”  Travel  Weekly.  March  11,  2013.   Online:  http://www.travelweekly.com/Travel-­‐News/Travel-­‐Agent-­‐Issues/Travel-­‐insurance-­‐regs-­‐ are-­‐easing-­‐but-­‐still-­‐pose-­‐peril/     25  American  Society  of  Travel  Agents.  “California  Travel  Insurance  Update,”  Press  Release.  March  1,   2013.  Online:  http://www.asta.org/News/PRDetail.cfm?ItemNumber=10129    
  21. 21. National  Consumers  League       $tuff  Happens     21   resolution  of  consumer  complaints  to  be  resolved.  Consumers  who  are  dissatisfied   with  travel  insurance  providers  have  several  options  available  to  them  for  reporting   problems,  including  the  Better  Business  Bureau  and  state  insurance  commissions.   However,  it  appears  that  insurance  commissions’  consumer  protection  role  is  not   well  publicized.  Since  2010,  only  64  travel  insurance  complaints  have  been  reported   closed  by  NAIC.26  The  UStiA  simply  refers  complaints  to  the  travel  insurers’   consumer  affairs  contacts.27  This  is  like  the  proverbial  fox  guarding  the  henhouse.       VI. Common-­‐Sense  Reforms  Should  Address  the  Lack  of   Consumer  Protections  in  the  Airline  Travel  Industry     Even  the  most  thorough  preparation  for  a  trip  can  be  wrecked  by  unexpected   events.  Gouging  consumers  whose  plans  change  due  to  family  illness  or  other   unforeseen  events  is  not  a  good  business  model.  It  also  appears  that  given  rising   cancellation/change  fees  and  high  refundable  ticket  prices,  consumers  may  be   turning  to  travel  insurance  policies  as  hedge  against  these  penalties.  Unfortunately,   misleading  marketing  of  these  policies  can  lead  many  consumers  to  purchase   coverage  under  false  pretenses.     To  address  these  issues,  NCL  believes  that  a  multi-­‐faceted  series  of  reforms  must  be   undertaken.  NCL  recommends  the  following:     1. Travel  insurance  policies  sold  through  airline  Web  sites  or  online  travel   agencies  should  be  marketed  in  clear,  non-­‐misleading  language  –   Wording  on  travel  Web  sites  for  travel  insurance  policies  should  disclose  in                                                                                                                   26  National  Association  of  Insurance  Commissioners.  “Closed  Confirmed  Consumer  Complaints  by   Coverage  Type  As  of  July  29,  2013,”  pg.  5.  Online:   https://eapps.naic.org/documents/cis_aggregate_complaints_by_coverage_types.pdf     27  U.S.  Travel  Insurance  Association.  “UStiA  Consumer  Complaint  Contacts.”  Online:   http://www.ustia.org/contact/Complaints.aspx    
  22. 22. National  Consumers  League       $tuff  Happens     22   large  font  and  plain  language  important  limitations  to  policies.  Consumers   should  be  told  where  they  can  find  insurance  coverage  details  and  informed   of  the  timeframe  to  purchase  travel  insurance.  Consumers  should  not  be   pressured  into  purchasing  travel  insurance  while  shopping  for  airfares  and   should  not  be  led  to  believe  that  these  insurance  products  are  only  sold   through  the  ticket  checkout  process.     2. Travel  insurance  loss  ratios  should  be  reported  –  According  to  the  UStiA,   17%  of  consumers  who  have  purchased  travel  insurance  file  a  claim  at  some   point.28  But  we  do  not  know  how  many  consumers  are  ever  compensated   when  they  file  a  claim.  The  industry  should  be  required  to  publicly  report  the   loss  ratios  of  their  policies,  i.e.  the  percentage  of  premium  dollars  paid  out  in   claims.     3. Tiered  cancellation/change  fees  based  on  proximity  of  travel  date  –  The   ability  of  an  airline  to  sell  a  seat  vacated  due  to  a  cancelled  or  changed  ticket   is  greater  with  more  lead  time  before  a  particular  flight.  This  should  be   reflected  in  a  tiered  cancellation/change  fee  policy.  Flights  cancelled  or   changed  more  than  5-­‐10  days  prior  to  the  departure  date  should  incur  no  fee.     4. Consumers  should  be  able  to  transfer  their  tickets  without  incurring  a   fee  –  While  some  airlines  accommodate  consumer  requests  to  transfer  their   unusable  ticket  to  another  traveller,  this  is  not  standard  industry  practice   and  is  rarely  easily  done  .  With  reasonable  timeframes  in  place,  consumers   should  be  able  to  transfer  their  ticket  to  another  person  easily  and  without   incurring  a  fee.                                                                                                                     28  U.S.  Travel  Insurance  Association.  “Survey  Reveals  Agents  Play  Key  Role  in  Travel  Insurance   Purchases,”  Press  Release.  April  21,  2006.  Online:  http://www.ustia.org/news/articles/agents-­‐key-­‐ role-­‐survey.htm    
  23. 23. National  Consumers  League       $tuff  Happens     23   5. Congressional  oversight  hearings  should  be  convened  to  examine  the   growth  in  cancellation  fees,  disparities  in  the  price  of  refundable  and   non-­‐refundable  tickets  and  misleading  marketing  of  travel  insurance   are  needed.  The  development  of  an  official  record  regarding  the  industry   practices  detailed  in  this  report  will  help  shape  necessary  legislative  or   regulatory  reforms  to  establish  much-­‐needed  basic  consumer  protections.     6. Standby  fees  should  be  eliminated  for  missed  flights.  Consumers  who   elect  to  fly  standby  on  the  same  day  in  the  event  of  a  missed  flight  should  not   be  required  to  pay  an  additional  standby  fee,  which  is  currently  required  by   many  airlines,  since  it  costs  the  airlines  virtually  nothing  to  fill  an  empty  seat.     Conclusion     There  is  always  an  element  of  uncertainty  in  consumers’  lives  that  can  affect  travel   plans.  We  believe  that  airlines  have  increasingly  hit  consumers  with  ever-­‐increasing   cancellation  fees  and  high-­‐priced  unrestricted  fare  tickets.  In  response,  consumers   have  turned  to  travel  insurance  policies  that  are  aggressively  and  deceptively   marketed  as  “protection”  on  the  sale  of  virtually  every  ticket  sold.     To  address  these  linked  issues,  NCL  calls  on  state  insurance  commissions,  the  U.S.   Department  of  Transportation  and  Congress  to  examine  what  has  become  a   regulatory  black  hole.  The  reforms  proposed  in  this  report  would  do  much  to  rein  in   an  industry  reliant  on  high  prices,  punitive  fees  and  penalties.  This  would  improve   consumer  protections,  enhance  trust  in  the  travel  industry  and  benefit  the  traveling   public.  

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