Insurance against airline bankruptcy

3/29/2019 8:21:20 AM

Some protection for airline insolvency is often written into travel insurance policies as part of trip cancellation/interruption coverage. However, as with all travel insurance, there are strict limitations in the fine print on what is covered and how much they’ll pay out in the case of a claim that may make such coverage useless, or at least not as useful as what you want.

For example, here’s a portion of a random Allianz policy sold in the United States (note that some of their other policies expressly do not include this coverage; it depends on the specific plan selected, and other limitations apply):

7.Your tour operator, airline,or cruise line ceases all operations due to its financial condition, with or without filing for bankruptcy.
The following conditions apply:
a.Your certificate was purchased within 14 days of the date of the first trip payment or deposit; b. The cessation of operations occurs more than seven days after your certificate’s Coverage Effective Date; c.Your certificate was not purchased directly through the tour operator, airline, or cruise line ceasing operations, or an affiliate of that entity; and. The tour operator, airline, or cruise line was included in our list of covered suppliers on your certificate’s Coverage Effective Date.

The conditions make this kind of insurance possible, as they’re able to remove airlines from their covered suppliers list at the first sign of any financial difficulty and the list of covered airlines is quite small (Norwegian is not listed, for example).

However, they won’t cover replacement tickets on another airline—no insurance company is going to want to do that since the cost is unpredictable (what if there are no replacement tickets on another airline?). Their payment will be limited to the policy limits. You’ll get money toward replacement tickets, but the amount may be quite inadequate if the cost has gone up. Other insurance companies may have somewhat different policies (some are more liberal on the carriers they’ll cover), but nobody I’m aware of has unlimited replacement ticket coverage.

3/29/2019 4:46:26 AM

Depending on which route you booked, an alternative ticket might not be easily available, or not available at all. I doubt any insurance can ever take on the risk and potentially pay you a 9000 first-class ticket because nothing else was available.
Alternatively, the premium would be several hundred dollar, which nobody booking on a budget airline would ever be willing to pay (except if he smells a rat, and those cases would kill the insurance for sure).
It’s just not a valid business model.

It might be possible to offer limited options for widely offered standard routes, like LGW-JFK or such, but even there can – on a busy day – a single plane that gets cancelled on short notice result in no economy seats being available on the same day, and force such an insurance to pay high value tickets.

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About me

Hello,My name is Aparna Patel,I’m a Travel Blogger and Photographer who travel the world full-time with my hubby.I like to share my travel experience.

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