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Summer of Mayhem Will Compound the Travel Insurance Market’s Woes in 2022

DBRS Morningstar published a commentary assessing the impact of the recent massive flight cancellations and delays on the profitability of travel insurance and the overall credit profiles of insurance companies.

Key highlights include the following:

-- The rapid increase in travel demand has hit airlines with an unprecedented number of cancelled and delayed flights due to extreme staffing shortages, increased operational requirements, and fleet reductions during the pandemic.

-- This material increase in flight cancellations and delays, as well as baggage losses, will likely make travel insurance unprofitable in 2022, compounding the problems experienced by the travel insurance business since the beginning of the pandemic.

-- Despite a substantial increase in travel insurance losses, the overall impact on the financial strength of insurance companies should remain manageable given their high degree of diversification.

“With many airlines and airports around the world facing extremely high levels of flight cancellations and delays in recent months, we expect that the travel insurance industry will experience combined ratios over 100% due to the increase in insurance losses, making this business line unprofitable for most insurance companies in 2022,” said Marcos Alvarez, Senior Vice President and Global Head of Insurance. “This will compound the problems experienced by the travel insurance business since the beginning of the pandemic, as insurance companies were initially hit by a jump in claims and then by the collapse of global travel, which considerably decreased the demand for this product.”