The Navigator: Travel insurance claims can hinge on the tiniest details

When it comes to travel insurance claims, Hannah Yun was about as sure as anyone that hers would be successful.

She’d bought a gold-plated “cancel for any reason” policy for a trip to South Korea. When her boyfriend proposed and she decided to call off the trip to start planning her wedding, she thought that collecting a check would be just a formality.

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(Andrew Bannecker for The Washington Post)

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Travel insurance FAQ: Buying a policy, filing claims and more

Wrong.

Travel Guard, the company she’d purchased the policy through, turned down her claim on a technicality. Yun, a college student in Salt Lake City, had originally told the company that her plane ticket had cost $1,090; she’d actually paid $1,092.50.

Denied because of a $2.50 price difference? You bet.

“It just doesn’t make sense,” says Yun, a refrain that I hear often. Complaints about seemingly arbitrary rejections cross my desk at regular intervals. No surprise: Travel insurance is a $1.8 billion-a-year industry, according to the US Travel Insurance Association, an industry trade group. And it has been growing steadily, from $1.3 billion in 2006 to $1.6 billion two years later to the latest figure, from 2010.

It’s no shocker in another sense, too: The travel insurance business is generally profitable, the occasional volcanic eruption or tsunami notwithstanding, and critics say that the only way it stays that way is by rejecting most claims, particularly the expensive ones. That’s difficult to prove — or disprove. The industry insists that its rejection rates are low. About one in six policyholders will file a claim on their insurance, according to the association, and fewer than 10 percent of those claims are denied.

Yun was among that unhappy minority. When I asked about her claim, Carol Mueller, a vice president at Travel Guard, said that the company had reviewed the case carefully and that according to its records, Yun had claimed — and repeatedly verified — the $1,090 ticket price. “The full cost of all non-refundable prepaid trip arrangements is insured at the time of purchase,” she told me. “Ms. Yun did not insure her full trip cost as listed on her itinerary at the time of her insurance purchase, and that was the criterion for her denial.”

Seriously? The rejection seems absurd to the average traveler, until you take a little time to understand how the travel insurance business works. I’ve spent the past year studying it, in part because I’ve been hearing about so many policy rejections and in part because a lot of my readers buy travel insurance hoping that it will protect them from some of the unbelievably awful things that I write about every day on my blog.

I should also note that my Web site attracts a fair number of sponsorships from travel insurance companies and sellers of insurance. Consider this my disclosure. I’d like to think that it doesn’t affect the fairness of my coverage, but I’m sure that you’ll let me know what you think once you’ve finished reading.

* * *

To understand why a travel insurance company does the often confounding things that it does, you have to know more about the actual policies and talk with insiders who are familiar with the claims process. Travel insurance policies are set by underwriters, the entities that take on the risk of insuring you on your vacation. For example, Travel Guard is underwritten by the National Union Fire Insurance Co. of Pittsburgh, and that company gets to tell Travel Guard how to word its policies. The verbiage doesn’t leave much to the imagination.