$tuff	Happens:	Airlines	Benefit Handsomely	From	the	

Unexpected	...	and	Consumers’	Fears	About It

September	23,	2013
National	Consumers	League	 $tuff	Happens

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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.
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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
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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
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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.
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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-feesin-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)	
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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
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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)	
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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	
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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-changefee-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.
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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
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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
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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:
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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	preexisting	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
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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
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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/hurricanesandy-travel-agent-tips/1667173/
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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	
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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
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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-isa-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-assistancein-richmond-va-4001660
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(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-instevens-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-regsare-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
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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
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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-keyrole-survey.htm
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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.