DID TRAVEL INSURANCE RESPOND TO THE RECENT IT OUTAGE? LET US REFLECT!

CrowdStrike's recent IT upgrade, which involved a faulty software update, significantly impacted Microsoft Azure and Office 365. This incident led to major operational disruptions to the below industries

1. Financial service - Banks
2. Airlines and airports
3. Public transit
4. Healthcare
5. Media and broadcasting

The insurance gap

The IT outage has demonstrated that we now live in a highly digitalized world where everything (road networks, health, travel) is interconnected within a complex computerized system. Businesses and the wider economy are now reliant on digital services and infrastructure for both critical and everyday activities. It is crucial for insurers and brokers to emphasize policies that extend beyond conventional coverage to include technological risks, as one disruption can impact entire markets. According to the Allianz Risk Barometer 2024, cyber incidents are the number one risk worldwide and the top risk in 17 countries. Technological risks are now the leading cause of business interruptions, surpassing physical/material damage in many countries.

The IT outage led to travel disruptions, delaying over 10,000 flights globally on Friday 19 alone. Although normal operations have resumed, some individuals remain stranded due to the outage's repercussions. Insurers are calculating the costs, estimated to exceed 1 billion, not including secondary losses like reduced productivity and reputational damage. Below is a discussion on travel insurance.

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Travel Insurance        

It is important to note that a travel insurance policy is a "listed perils" policy, meaning if a peril is not explicitly named in the policy, it is not covered. There is debate over whether travel insurance covers IT outages, so it's essential to review your policy wording to see if it addresses technical issues or disruption-related incidents. Without this, claiming might be difficult. However, some policies use terms like “any other” or “otherwise” to account for emerging risks like the IT outage (My own view). As a client, visit your brokers or insurers for informed conversations about coverage gaps.

Let us look into the main things to consider:        

Cancellations

• Carrier cancelled flight or cruise - Travel insurance typically does not cover cancellations caused by airlines. The airline is liable for such cancellations as part of fair customer treatment. If a cancellation occurs due to mechanical, technical, or operational outages, the airline will compensate you, provide accommodation, or reschedule your flight. Now, looking at the issue of CrowdStrike, it is a technical issue and theoretically there is no insurance cover. Policyholders may claim compensation directly from the airline based on their terms and conditions. However, there are exceptions to this rule, such as weather conditions and security risks, which are beyond the airline’s control. The IT outage is beyond the service provider's control, hence compensation is unlikely. However, in jurisdictions like the United States, the Department of Transportation has deemed Friday's 19 outage "controllable," allowing passengers to claim compensation directly to the airlines.

The wording form one insurer:

“You are not covered for any claim when the airline or cruise company could not provide the transport (whether as the result of error, omission, default or otherwise). You must request a refund from the carrier.

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7.3.2. When any provider cannot supply the service or transport of any part of the trip (whether as the result of error, insolvency, omission, default or otherwise) unless the event is specifically covered by this policy”

• Cancellation for a Named and Any Reason by the policyholder – A policyholder can cancel a policy and some travel insurance policies cover such cancellations. However, this benefit may not apply to some people affected by the recent IT outage due to the time excess specified in the policy. Wording for another insurers

“You must cancel your flight, cruise and accommodation at least 24 hours or more before your scheduled departure time from your home country. The Cancel for Any Reason benefit ends 48 hours before your time and date of departure from your home country”

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Travel Delay

Policyholders may receive compensation from their insurer for travel delay expenses, depending on the policy's time excess. This is an important benefit as some airlines are not obligated to cover costs like meals or accommodation during a delay. For comprehensive travel insurance policies, coverage for travel delay expenses usually begins if you are delayed for six hours or more. In the case of an IT service outage, while the outage lasted for 75 minutes, travel insurance typically covers delays directly related to travel disruptions.

?Below is a wording from one insurer:

“When your pre-booked flight or cruise departs, however the departure is more than 6 hours later than the scheduled time of departure, as a direct result of:

-?????? failure of air traffic control systems”

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Curtailment benefit/ Abandonment

Curtailment benefit and abandonment coverage refer to insurance provided to travellers who need to cut their trip short or cancel it due to unforeseen circumstances. The reimbursement for curtailment will be based on the pro-rata cost of the unused portion of the trip.

Below is a wording from one insurer

You return to your home country earlier than your scheduled date of return as a direct result of your, or your travel companion or your close relative’s:

-?????? A cancelled sporting event or conference you are booked to attend

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It is also important to take not of the below:        

• Type of cover – Some travel insurance policies offer different levels of coverage, such as basic, standard, or comprehensive. In Zimbabwe, many travellers opt for basic travel insurance primarily for compliance with visa requirements. This basic cover usually focuses on medical benefits and may not include extensive coverage for delays, cancellations, or other issues.
• ·Departure time – The insurer will only compensate the policyholder if the peril occurred after they had already departed on their journey. Some perils are covered only if the passenger has checked in for their flight or has passed through passport control in their home country.
• Date of purchase – If a policy is purchased after a peril has become a known event, no compensation will be provided. An event is considered a known event if it is public knowledge or if the policyholder was aware of it before purchasing the policy. For example, if there is media coverage of a planned strike before the policy is bought, the insurer will not cover claims related to that strike.

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The tech world is rapidly evolving, and underwriters should consider these changes in their underwriting processes to ensure that insurance remains relevant and effective. Staying updated with technological advancements will help in accurately assessing risks and providing coverage that meets the needs of modern-day policyholders.

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Next Article        

Was it a Cyber-attack? Who is responsible for what? What other covers were affected

Warning:

Any advice provided in this article is of a general nature and has not considered your needs and objectives.?