Travel Insurance Products In Canada

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Travel insurance responds to the need for travelers to protect themselves from the many things that can occur before and during a trip, whether it is at home or abroad. What happens if you become ill before the trip? A family member becomes ill and you have to cancel? What if your luggage is lost or delayed? What if the flight is delayed and you have to spend money on meals and hotels? What if you become ill during the course of your travels? You may need to be flown home by air ambulance or a family member must fly to another country to assist you? The availability of travel insurance responds to these concerns and adds some comfort to the traveler.

Travel insurance is defined as
a) insurance against loss or damage that is incurred by the insured
during or in conjunction with travel, or
b) insurance against loss or damage occurring because of
cancellation of travel arrangements.

Insurance is a product that provides peace of mind against the uncertainty of potentially large financial losses, and all for the payment of a relatively small monetary premium. Insurance applies to potential future losses arising from unavoidable risks that occur naturally in the course of business and personal life such as fire, accident, theft, disease and untimely death. The terminology that insurance companies use:

the risks covered, the details regarding conditions and exclusions, can all be very confusing to travelers. The agent selling the insurance has the responsibility to advise/disclose accurate and correct information to the client concerning the key elements of the insurance policy that is being purchased. Depending on the type of coverage sold, this would include: risks covered, conditions of coverage, exclusions, and benefits. The client or insured has the responsibility to provide honest information concerning them that would affect the conditions of this policy.

The Need for Insurance

Insurance Insurance is a contract in which one party, the insurer, for monetary consideration, agrees to reimburse another, the insured, for loss or liability for a loss on a defined subject caused by specified hazards or perils. Insurance is purchased to help plan for unknown events that might occur. These events, known as risks, must involve some financial loss to an individual or company. Insurance would protect the individual or company from this loss, in exchange for a small payment, known as a premium. The individual or company must abide by the conditions of the contract, known as the policy. Three main categories of risk are Personal, Property and Liability.

Risk Categories

Personal Risk is an incident or event that affects an individual physically,
including loss of life, illness, or disability.
Property Risk is an incident or event that affects direct or indirect loss to
personal or real property and possessions, due to theft, fire, high wind,
floods, earthquakes, damage, loss, cancellation of the trip, the default of supplier or other situations that are beyond the control of an individual.
Liability Risk is an incident or event that involves loss from negligence
resulting from bodily harm or property damage.

The Need for Travel Insurance

Most travel agencies sell travel insurance as part of a range of travel-related products they offer their clients. It has become an essential part of what the travel counselor offers a client, as the risks involved in traveling today may include:

 Accidents  Theft
 Sickness  Baggage Delays
 Death  Family Loss
 Fire  Trip Cancellation
 Flight Delay  Loss of Baggage
 Default of Travel Supplier  World Events
 Rental Car damage or theft

In most cases, insurance reduces or eliminates financial loss from these risks.

Insurance cannot prevent an event from happening but it does give the insured peace of mind. The enjoyment of the vacation or trip is enhanced through the availability of travel insurance.

Insurance is optional. It is the travel counselor who must clearly outline and explain the risks that can occur based on the type of travel or type of package purchased. They must offer the most suitable travel insurance plan that meets the client’s needs. The goal of the travel counselor is to provide the client with a worry-free trip. Insurance plays an important role in making this happen.

Insurance Industry People

Industry Personnel
Each individual connected with the buying or selling of insurance can be
identified with a legal description.
Insured
This could be an individual, family, traveling companion or any person or
a business that needs protection against any financial loss.
Insurer
This is the insurance company that agrees or offers to undertake the
contract of insurance.
Insurance Agent
An individual, such as a travel counselor, who solicits, obtains or takes an
application for insurance or negotiates for or procures insurance or signs
or delivers a policy, or collects or receives a premium for insurance. An
the agent is also known as an intermediary.
The insurance company will collect data on how many claims are made for all types of insurance. An Actuary will “crunch” or analyze these numbers to match types of claims with the frequency of claims, with the circumstances from which the claims arose, etc so that insurance premiums can be set, and policy inclusion and exclusions can de determined.
Actuary
One who specializes in the mathematics of insurance: analyzing statistics,
such as mortality rates, that can help insurers make appropriate business
decisions.
Auditor
One authorized to examine and verify accounts. Insurers are required to maintain annual audits of their financial and statistical statements.

Claims handler/examiner
An employee of the insurance company who looks after your claim and is overseen by a claims manager.
Underwriter
This could be either an employee of the insurance company who decides
whether or not the company should accept a particular risk or a term referring to the company providing insurance. For example: “Company XYZ is the underwriter of that insurance policy.”

Essential Elements of Insurance:

The travel insurance business includes the following elements:
a) undertaking or offering to undertake to indemnify (to provide compensation for loss or expenses incurred) another person against loss or liability for loss in respect of a certain risk or peril to which the object of the insurance may be exposed,
b) soliciting or accepting any risk,
c) soliciting of an application for a contract of insurance,
d) issuing or delivering of a receipt for any contract of insurance, or contract of
insurance itself,
e) consideration of any premium or payment,
f) collecting or receiving of any premium for a contract of insurance,
g) adjusting of any loss covered by a contract of insurance, or
h) advertising for any business described in (a) to (g). above.

Insurance Contract
Insurance policies are a form of contract, subject to the usual rules of contract law with the addition of “insurable interest” and “utmost good faith”. Below is a list and explanation of what are considered to be the essential elements of insurance.

Consideration
The premium (fee) charged by the insurer and an inducement (reason) for
entering the contract.

Insurable Interest
An interest that the insured must-have in the subject matter of the insurance they buy so that in the event an incident occurs which the insured has purchased coverage, the insured will suffer a monetary loss.

For Example, a traveler has an insurable interest in his non-refundable pre-paid travel arrangements and may insure against loss of these arrangements due to delay caused by the sickness of a family member or traveling companion.

Legal Capacity of the Parties to the Contract
To affect a valid insurance policy, both the insured and the insurer must be competent to enter a contract. Two areas of concern are minors and the mentally incompetent. While a minor can contract for the necessities of life, insurance is not considered such a necessity.

Legality of Object
The insured’s need for insurance must be derived from a legal purpose such as business or vacation plans. If an individual does not have a legal purpose, (eg, the individual engages in smuggling or theft) then any travel accident insurance purchased would be void.

Material Fact
This is information to the contract of insurance that is important enough to change the agreement between the insurer and the insured. Material facts must be disclosed if asked about.

Non-disclosure, failure to disclose, may result in avoiding of the policy involved.

For example, A client may be under a doctor’s care for an unstable condition. It is the responsibility of the insurance agent to discover or make the client aware of exclusions related to this situation.

An insurance agent must be aware that any misrepresentation by a client to the material fact could also void the policy. Misrepresentation can be innocent, arising from an oversight. Fraudulent misrepresentation is a deliberate untruth with intent to deceive, or it can be the result of extreme carelessness where a statement is made without regard to whether it is true or false. When misrepresentation is discovered, the insurer may either continue the contract or treat the contract as void with a full return of any premiums paid.

For example: A client is under a doctor’s care for an unstable condition. You, as the insurance agent, mention that unstable conditions are excluded from emergency hospital medical insurance. Your client lies to you by stating that this would not affect them.

Offer and Acceptance
The parties to an insurance contract, or policy, are the insured and the insurer. There must be a definite offer by one party and an equally definite acceptance by the other. In travel insurance, the insurer normally provides the travel counselor with the authority to accept applications, bind coverage and issue policies. The travel counselor’s authority may have restrictions in that certain applications must be referred to the insurer for review and acceptance or declination.

For example an applicant may be older than their stated age, or an applicant’s medical history is uncertain.

Insurance Business

The insurance industry has, for the past four centuries, collected data to calculate premiums vs. claims to equal profit. Astronomer Edmond Halley, in 1693, constructed the first mortality table, based on the statistical laws of mortality and compound interest. The table was corrected by Joseph Dodson (1756), which made it possible to scale the premium rate to specific age groups.

The Law of Large Numbers This is the mathematics of probability that states that the degree of uncertainty is reduced as the number of events increases. For example:

The more often claims are made for specific coverage, such as emergency hospital medical, the better insurers are able to predict under what circumstances and with what frequency, a claim of this nature will be made. Insurance is built on this premise, permitting forecasts of loss certainty in a large group of similar risks.

It is impossible to predict which individual travelers will be injured on their journeys, but the experience of a large number of travelers will indicate what percentage of them are likely to be injured on their journeys. Insurability Certain characteristics must be present before an insurance program can be established:

non-emergency medical treatment or surgery, as such would be planned or intended and therefore, expected. The potential loss must be great enough to cause hardship, if uninsured. Being stranded in a foreign country is sufficient loss to cause hardship, if uninsured, and therefore it is a sufficient risk to justify the sale of trip interruption insurance. The premium rates must be calculable from statistics or experience.

Travel insurance rates are calculated both from generally available statistics and individual insurers’ own claims experience. The premiums must be affordable, or no one will purchase the coverage. Travel insurance premiums have remained affordable, but as Provincial Government hospital and medical plans pay less and less of American hospitalization charges, premiums for senior citizens for emergency ‘excess out of Province hospital and medical insurance’ has risen sharply and may go higher.

Only a few of those insured must be likely to suffer loss at the same time. Accordingly, trip interruption insurance excludes loss or damage caused by or resulting from war, invasion, or civil war that could injure large numbers of insured travelers at the same time.

Insurer Premium Calculation

The average cost of insurance can be calculated by comparing the total premiums received in a year, with the total payout during the same time period. The premiums of all policies are “pooled” into a protected fund with the insurer to cover any claims. (see Premiums & Claims Reserves)

Premiums are calculated by adding together:

1) this average cost,
(2) the insurer’s claims adjustment expenses,
(3) the insurer’s costs to issue and administer the insurance policies,
(4) the insurer’s acquisition costs for such expenses as agents commission and Provincial premium tax,
(5) estimated investment income on the money generated,
(6) reinsurance cost and,
(7) an allowance for the insurer’s profit.

Classification of Risks

Classification of Risks Further classifications to Personal, Property and Liability include the province of residence, age of the insured, length of trip and destination. For example, Canadians traveling abroad have different exposures to hospital and medical expenses. The various Provinces do not contribute equally to these expenses. Elderly travelers tend to suffer sickness more than young travelers. The longer the insured is on a trip, the greater the likelihood of being exposed to 2015 24 © Association of Canadian Travel Agencies sickness. Plus the Hospital and Medical costs are much higher in America than in Europe.

Premium and Claims Reserves

An insurer promises to pay future claims after a policy has been issued and the premium paid for. To ensure that there will be money available for these claims, insurers are required to establish reserves or pool funds that are set aside for the purpose of meeting these obligations if and when needed. This includes:

(1) premiums for active policies issued that have not expired and
(2) the estimated costs of unpaid claims.

Classes of Insurance

As we mentioned in the Need for Insurance chapter, insurance covers three main categories of risk: Personal, Property & Liability. They can be further divided into two main headings: Life and General. These Classes of Insurance are mainly used in the licensing of insurers and control of policy wordings.

Life Insurance

Life Insurance means insurance by which an insurer undertakes to pay money to the insured or beneficiary:
 on death,
 on the happening of an event or a contingency dependent on human life,
 at a fixed or determinable future time,
 for a term dependent on human life.

and includes,
 accidental death insurance,
 disability insurance,
 the provision of an annuity.

General (or other than Life) Insurance
This classification of insurance covers Property & Casualty. It is under this heading that Travel Insurance falls in the province of British Columbia.

Travel Insurance

Travel insurance is defined differently by each province. For the purposes of this study manual we will define travel insurance as:

  • Insurance against loss or damage that is incurred by the insured during or in conjunction with travel, or
  • Insurance against loss or damage occurring because of the cancellation of travel arrangements

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