Why Do People Consider Travel Insurance Useless?

I was sitting in ‘The Weary Traveller’ the other day reading my paper and having a quiet afternoon beer when I came across a couple of items that surprised me.

The first was that according to the Association of British Insurers (the ABI), over £1,000,000 a day is paid out to people making claims on their travel insurance policies! That is a staggering figure.

I also read that around 16 million people travel abroad each year, so assuming they all bought travel insurance that is a lot of policies.

We know that not everyone makes a claim, and I vaguely remember an old drinking buddy who used to be an Underwriter at Lloyds of London telling me that around 3% of all policies issued have a claim made on them.

So, 3% of 16million is 480,000. If the ABI figure is correct then roughly £254,000,000 is paid out (allowing for weekends and bank holidays). So, the average claim works out at roughly £530.

The second item that caught my eye was the story about an MP who had managed to work the word floccinaucinihilipilification into a sentence during a debate!

I am not even sure how you pronounce a word like that, but I can tell you that it means ‘the habit of considering as worthless’, and it is one of the longest words in the English Dictionary!

Now you may wonder why these two items are connected, and I will tell you.

I was recently having dinner with my mate Charlie, you remember the cricketer? The one who got dumped in Rimini? – oh come on surely you read my blogs???

Never mind. Charlie was about to go on holiday and was arguing with his wife whether or not to buy travel insurance.

“I think it is a complete waste of money” Charlie said “Every time something happens the insurance never seems to provide the cover you want.”

I am not going to go through the whole conversation, but I fear that Charlies thoughts are echoed by a large number of people. Clearly, looking at the ABI figures a large number of people have bought travel insurance and seen the benefit of it, so I began to think about why people should buy it.

So, I gave my old underwriter pal a call and asked him if he fancied a pint – that is a bit like asking the Pope if he is Catholic – and we arranged to meet the following afternoon.

I arrived at ‘The Weary Traveller’ promptly and hadn’t long taken my seat when in walked Bertie. Bertie is old school – still wears a pin stripe suit, waistcoat and bowler hat. Bertie is a short rotund figure and he breezes into any room like a Dickensian character. ‘My Dear Boy!’ he exclaimed as he saw me sitting at the bar – ‘How good to see you. Ah I see you have anticipated my next thought’ I handed him a pint of the ‘Travellers’ best OId Wallop. He raised the glass to his lips and savoured the moment as he took a long drink. ‘Nectar.’ He intoned ‘a gift from the gods themselves’.

We went over and sat at quiet table, and I asked him if he could give me some valid reasons as to why anyone should bother buying travel insurance. He looked at me incredulously. “Dear fellow” he said in his mellifluous tone “are you completely insane? Why on earth would you NOT buy travel insurance?”

He then went onto explain that whilst the ‘incidence rate’ (i.e. the percentage of policyholders who actually make a claim), is low, the consequences of not having it can be disastrous “Beside”’ he said “it costs so little. Around £15-£20 for two-week holiday. Weigh that up against what you might have to pay out if you didn’t have insurance, and it really isn’t worth the gamble. Oh, you are too kind” he smiled as I placed a fresh pint in front of him.

Bertie went on to tell me various stories about people who considered travel insurance to be too expensive and who had suddenly had to cancel their trip because of unforeseen illness or injury, and lost thousands of pounds.

Worse still was the case of someone who travelled to America and had a heart attack. After open heart surgery, a few weeks recovery and the cost of buying new tickets to get home, they were £100,000 out of pocket and had to re-mortgage their home in order to pay the medical bills.

He had numerous other tales, but one thing was clear to me – if I decide to go travelling I would not go without travel insurance. For a £20 upfront payment, I could be saving myself tens of thousands should the unthinkable happen, and even if I end being an ‘average’ claimant £20 against £530 is still a pretty good bet.

Of course, there are exclusions and excesses, and other ‘small print’ items, but as Bertie said “Listen, Old Chap, the whole point of insurance is that lots of people pay a small amount of money so that a few unfortunate people can recoup their losses in the event of something bad happening; it’s Socialism wrapped up in Capitalism! Of course, the money has to be enough to go around and therefore you only want people to take out of the fund if they truly deserve to, so there has to be rules!” and with that he picked up his bowler hat and walked out into the night ‘Toodlepip” I heard as the door closed behind him.

As I stood up to leave I thought about those two items from yesterday, and what Bertie had just told me, and decided that the floccinaucinihilipilification of travel insurance is ridiculous!