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Travel Insurers Likely to Feel Fallout from Iceland Volcanic Eruption

Source: A.M. Best

Posted on 20 Apr 2010

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The ongoing eruptions of the Eyjafjoll volcano in southern Iceland is causing severe disruption of commercial air travel across the United Kingdom and northern Europe, an event that will likely affect travel insurers.

But the wider implications of the event, which started March 20 and intensified April 13 remain unknown for the insurance and reinsurance markets. The eruptions spewed ash about 11 kilometers into the air.

On the morning of April 16, Eurocontrol, the European flight traffic management organization, said it expected about 11,000 flights to take place in European airspace, compared with a normal volume of 28,000.

Eurocontrol said that as of April 16, airspace was not available for operation of civilian aircraft in the following countries/areas: Ireland, the United Kingdom, Belgium, the Netherlands, Denmark, Sweden, Norway, Finland, Estonia, the north of France including all Paris airports, parts of Germany including Dusseldorf, Cologne, Hamburg, Berlin and the airspace around Frankfurt, parts of Poland including Warsaw airport.

"Forecasts suggest that the cloud of volcanic ash is continuing to move east and southeast and that the impact will continue for at least the next 24 hours," said Eurocontrol in a statement on the morning of the 16th.

U.K. and Europe-based insurers and reinsurers say it is unclear what insurance impact the Iceland volcano event may have. With the exception of travel insurance, it appears the effects may be small.

"The likelihood of significant impacts on reinsurance wrought by the volcanic eruption on Iceland seems low," said Brigitte Meyer, a spokeswoman with Swiss Re. "It is too early to provide further comment at this point in time."

According to Hannover Re, business interruption claims related to flight cancellations are unlikely. "We do not expect any claims from this event as business interruption is not covered by aviation insurers," said Silvia Dudda, a spokeswoman for the reinsurer.

Janina Clark, a spokeswoman with the pan-European insurance trade group CEA, said, "We are currently consulting our member national associations on the implications."

Clark referred BestWire to a statement issued by the Association of British Insurers on the implications for U.K. travel insurers. According to the ABI, travel insurance does not always cover volcanic disruptions that cause flight cancellation and delay.

"Travel insurance policies will differ in this situation; there is no standard set of conditions which applies to a situation of this kind," said Nick Starling, the ABI's director of general insurance and health, in a statement. "Customers should check their travel insurance policy, and speak to their travel insurer to understand what their individual policy covers them for in this situation."

Claire Foster, a spokeswoman with U.K.-based Direct Line Travel Insurance, also referred queries to the ABI. Direct Line, a unit of RBS Insurance Group, issued a statement saying Direct Line customers "will be covered for travel delay and missed departure." The insurer added that "travellers with Direct Line insurance policies returning to the U.K. facing disruption will also be covered."

Jennifer Thomas, spokesperson for Direct Line, said in the statement that "customers are advised to check with their airline or tour operator. If an airline cancels a flight, then customers should claim for a new flight from their airline. If they have booked the flight on their credit card, the Consumer Credit Act could help with any claims made."

Thomas added that if a customer has a flight cancelled and is refunded from the airline, but still has accommodation that they can't cancel or use, these claims can be considered under travel delay leading to trip abandonment.

"Customers will need to provide written official evidence to support any claims where it is reasonable to request such evidence," said Thomas. "In this case, information from official airline websites is acceptable as evidence.

"As with all insurance policies, you are unable to insure for an event or incident after it has happened," said Thomas. "Therefore, customers wishing to buy travel insurance today will not be covered for travel delay or missed departure arising from the volcanic ash as they are buying cover in the knowledge that there is a problem. This highlights the importance of buying travel insurance as soon as you book your holiday or flight."

Bill McGuire, a scientist with the Aon Benfield UCL Hazard Research Center in the United Kingdom, said the volcanic ash cloud generated by the volcano is made up of silica-based material that can cause "major damage" to aircraft by clogging engines and scouring windscreens. There have been more than 80 encounters between aircraft and ash clouds over the past few decades, "resulting in a number of situations where crashes had only narrowly been avoided," he said in a statement.