The aftermath of the September 11 terrorist attacks is a perfect example of a major event where travel decreased but the purchase of travel insurance increased.

Additionally, the latest United States Travel Insurance Association Market Survey revealed that Americans spent nearly $1.6 billion on travel insurance in 2008, reflecting steady growth in sales of some 13 percent over the previous two years.

Fast-forward to 2010. In addition to economic turmoil, the first half of the year included some notable events that drove interest in travel insurance, including the Swine Flu pandemic, Icelandic Volcano ash cloud and even the BP oil spill.

Our companies have recorded an increase of more than 25 percent in travel insurance policy sales this year. While the Icelandic volcano event occurred during a relatively quiet travel period, we paid out nearly $500,000 in claims for the travel chaos that ensued and experienced an upward spike in sales following the eruption.

The hurricane season forecast, continued economic uncertainty and threats of airline strikes suggest there will be continued growth in travel insurance purchases through the end of 2010. The simple fact is that travel is still up over 2009, even though a recent USA Today/Gallup Poll showed only 16 percent of respondents plan to fly more or stay more often in hotels this year--and about 30 percent said they will travel less often. (USA Today, Dec. 28, 2009 http://bit.ly/7QaF6q)

Those that are traveling are insuring trips with an average value of $1,427, according to our internal data. This represents an increase of 23 percent over 2009.

Along with the overall increase in business for travel insurance, 2010 also presents a mix of opportunities and challenges for both the carrier and consumer.

As travelers become more experienced and better educated about the benefits of travel insurance, we believe the market will continue to grow.

For that reason, we have devoted significant effort to educating the public and the travel industry about travel insurance, as well as examining ways to simplify and call out specific policy terms and conditions. Some examples of policy enhancements are cancellation for business reasons and for active duty servicemen, police officers and firefighters called off approved leave due to an emergency such as a terrorist event, a natural disaster, etc.

The Affordable Care Act of 2010 may also provide future opportunities for travel insurance. As the act takes full effect, Americans traveling overseas may have limited or no health insurance once they leave the borders, similar to what European and Canadian travelers are faced with today.

It has been estimated that Americans purchase one-third the amount of travel insurance as their European and Canadian counterparts. The difference is mostly attributable to the absence of health benefits outside the traveler's home country. As American consumers understand the various restrictions within their own health care coverage and how travel insurance can protect them, we believe the number of people that travel insured will continue to grow.

CHALLENGES

The travel industry generally responds to high inventory with stable or lower prices, an increased willingness to negotiate, and more online auctions to entice travelers. As is typical with a soft market, carriers are broadening coverage.

One example is the creation of "cancel for any reason" or "cancellation at will" insurance programs. Unfortunately, "cancel for any reason" insurance is problematic for carriers. It has increased the industry's risk exposure significantly and has little viability for travel insurance in the long run.

First, while clients would like to see this feature, very few travelers are willing to pay the additional cost--about 50 percent more than standard travel insurance.

Secondly a carrier could not earn enough premiums to cover the increased risk exposure or a threat of a potential exposure.

"Cancel for any reason" allows one to cancel for reasons such as a sick pet, a lover's spat or even a bad hair day. Suppose a major news outlet were to report on a possible pandemic arising in an area of travel. This news would cause travelers to cancel out of fear that they might become exposed--just as it did during the swine flu pandemic.

Finally, although it comes with a higher premium, it is misleading to consumers because it is a partial reimbursement covering only 75 percent to 80 percent of the amount of the trip insured and the fine print excludes coverage if a consumer does not insure the entire cost of their trip or if a trip cancellation occurs within 24 or 48 hours of departure time.

This type of coverage has also received backlash from lawmakers. In New York State, for example, regulators do not consider this type of coverage to be insurance and will not allow it.

Special interest advocacy groups have also presented challenges for travel insurance. The Consumer Federation of America, which represents nearly 300 nonprofit consumer groups, recently cautioned people about buying "add-on" insurances such as travel insurance--an assertion that promotes misconceptions about travel insurance.

For example, some people believe that travel insurance coverage is provided through credit card benefits or other types of insurance. Also, many believe that if travel insurance is purchased directly from a cruise line or an airline, they are covered if the cruise line or airline goes bankrupt.

Travel insurance is not designed to replace insurance such as homeowners or health care insurance. It is designed to provide coverage in places where existing policies do not.

For example, many homeowner policies have $500 or $1,000 deductibles. Travel insurance baggage coverage fills in the gap caused by the deductible.

Simply put, travel insurance is designed to protect against defined, unexpected occurrences related to travel. Travel insurance, along with the emergency assistance services, helps to prevent financial disaster and has saved lives. During the Icelandic volcano incident, travel insurers' emergency call centers were extremely busy assisting stranded travelers with alternative travel arrangements, cash transfers, emergency prescription refills, and relaying messages to family or friends back home.

Major, unforeseen events over the past decade have highlighted the importance of travel insurance to domestic and international travelers. In many cases, it has proven to be a win-win situation for both the carrier and the consumer--driving business while saving money for travelers who suddenly find themselves with high unplanned expenses.

While we can expect 2010 to continue this upward trend, it is important to use these and other challenges as opportunities to continue to differentiate and build on our platform of insurance products and services.

Grace Meek is chief business officer at Delos Insurance Group, a New York-based provider of specialty insurance programs.

Bill Dismore is chief operating officer and executive vice president at iTravelInsured(R), a licensed managing general insurance agent specializing in the design and management of travel insurance programs.

What Does Travel Insurance Cover?

Travel insurance is designed to protect against defined, unexpected occurrences related to travel.

• The purpose is to provide benefits for incidents that have actually occurred.
• The purpose is not to provide benefits for a potential incident, such as a possible pandemic.
• Some people incorrectly believe that travel insurance is provided through credit card benefits or other types of insurance.
• Many people incorrectly believe that if travel insurance is purchased directly from a cruise line or an airline, they are covered if the cruise line or airline goes bankrupt.
• Travel insurance is not designed to replace insurance such as homeowners or health care insurance.
• Travel insurance is designed to provide coverage where existing policies do not, for example, filling a baggage insurance gap caused by homeowners policy deductibles.