News Analysis: Volcanic fallout

The disruption from the Icelandic volcano Eyjafjallajökull, which closed much of European airspace over a week in April, is still causing difficulties for people trapped overseas. The eruption has given the travel, airline and insurance industries pause for thought into how to deal with such events in the future.

Members of the Association of British Insurers met soon after the eruption but there was no consensus on how to pay claims with the ABI advising customers that each insurer had a different policy. Some insurers such as Fortis were quick to issue guidance saying they would pay out for trapped passengers, but advised them to contact their airlines and travel operators first.

EC regulation 261/2004 states that airlines should pay for reasonable accommodation and refreshments when flights are cancelled or delayed.

Climb-down
Only Ryanair raised serious opposition to the ruling but, after just 24 hours, was forced to back down from its stance of only refunding the cost of flights for affected passengers.

Nick Starling, director general at the ABI, told PB: "This was unprecedented, but it is not for us to tell our members how to develop their policies. Although we do want better information for consumers, existing travel policies set out clearly what is not covered and are very clearly written. It is supposed to complement other forms of cover such as European health insurance."

Peter Hayman, managing director of specialist travel insurer PJ Hayman, criticised small print around abandonment cover, where some insurers have exclusions if a policy holder has not checked in at the airport. Aviva, for example, has confirmed this is still in place, but said it would help customers stranded abroad on a case-by-case basis.

Hayman also argued for a more collaborative approach from insurers: "I wish there was a consensus out there and this doesn't put our industry in a good light." He added that the catastrophe element of his own wholesale broker product would cover additional expenses incurred by travellers.

Mark Cliff, managing director at Fortis, said: "We decided within half an hour that our customers should be covered as a 'bad weather event'. We felt that the customer expectation would be that this was covered, and also extended policies by 30 days for those abroad. "

He said the insurer would be looking hard at how to improve cover in the future and would be working closely with the ABI.

There is no cover available for businesses affected by interruption to the planes and BI can be only claimed as a result of material damage. However, Peter Fice, head of London market, property division QBE, said there were some policies that could include limited inclusions such as denial of access, but said the volcano "type of incident was never in anybody's minds" and questioned whether there is an appetite to write these risks. In addition, airlines are not covered for having to pay out to customers, although Munich Re hinted it could provide such cover if there was enough demand.

All policies, even if they are paying out for volcanic ash disruption, have strict limitations and policyholders will be hoping they can claw the majority of their money back in what have been truly unprecedented circumstances.

Let's hope nearby Mount Katla, with the potential to cause more damage, doesn't erupt for the first time since 1918. Meanwhile the EU is working on a volcanic eruption response plan.

Source: PB – May 2010