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Travel and You

Insurance Costs Take Toll on the Industry

February 09, 1986|TONI TAYLOR | Taylor, an authority on the travel industry, lives in Los Angeles.

Any industry as far-flung, as complex, as travel must encounter potentially damaging obstacles at frequent intervals.

High labor and fuel costs affect virtually every segment of the business. Overbuilding has made life miserable for hotel operators in many areas.

Overcapacity has severely inhibited the cruise lines' chances of making money. Terrorism, earthquakes, offshore oil leaks, political unrest, typhoons . . . there probably isn't another industry that can be so adversely affected by so many factors.

Headline Factors

All of these, of course, are the "splashy" factors, the headline grabbers. But there is another problem facing purveyors of travel that is as serious as any.

On paper, it is a mundane item. In practice, it has the potential to bring huge segments of the travel industry to a halt.

It is insurance. Or, more accurately, the increasing cost and scarcity of good liability coverage.

From one end of the spectrum to the other, travel companies are finding it tougher to locate an affordable insurance umbrella.

Retail travel agents, who work on low profit margins, are in an especially tough spot. As the point of sale in the transaction, they are vulnerable to legal action by customers if anything goes wrong, even though the mishap may be out of their control.

Because of this vulnerability and an increasingly litigious population, insurance companies have doubled and tripled the cost of the "errors and omissions" policies they offer travel agents. Those who have stayed in that kind of insurance, that is; many companies have dropped out.

Agent Sued

One agent in the Midwest was sued presumably because he failed to warn a client that the Achille Lauro was going to be hijacked by terrorists!

It's not the issue whether the agent should have known of the danger and warned the client or whether the client, by reading the daily newspapers, should have realized that the Mediterranean was a potentially explosive area.

The point is that the suit was filed not against the ship operator but against the travel agent, who now finds it necessary to defend himself. With insurance, the cost of losing a case in court is high. Without it, it's crippling.

Sky-high premiums--when insurance is available--is forcing more agents to operate without coverage. They are risking everything they own in the hope that they won't be sued for anything . . . bad weather, a canceled flight, a hotel room that wasn't ready as promised.

Believe it or not, people do seem to hold the agent responsible for such unforeseen acts of God and third parties.

Tour operators are in the same boat. They run the risk, constantly, of being challenged in court because, for example, one of their groups was in Vienna airport at the time of a terrorist attack, or because a block of space on Air Zimbabwe was not delivered as published, or because the Stanraer-to-Larne ferry ran into heavy seas.

Agent/wholesaler liability insurance simply isn't as easily bought nowadays as it once was, and when it can be bought, it tends to cost an arm and a leg.

Airlines have a special insurance problem. Last year was not one of the air transportation industry's happiest.

About 2,000 people lost their lives in airplane crashes. As a result, the available pool of liability and hull insurance money is dangerously low.

Some insurance carriers won't touch this type of policy anymore and those that do are looking at massive premium increases. Because of cost and availability, some airline executives say that insurance is the single biggest problem facing them in 1986.

New Minimums

Elsewhere, the government just ruled that bus operators must carry a minimum of $5 million of insurance this year, as against the $2.5 million required in 1985.

That doesn't simply mean that premiums have doubled. Depending on bus company, type of traffic, geographic area and insurance supplier involved, premiums in some cases have increased 400% to 500%.

The American Bus Assn., a trade group, said that many of its members will have difficulty coming up with insurance and that a quarter to a third of them may have to close.

Cruise lines are having to dig deeper, too, because of the Achille Lauro affair and the loss in 1984 of the Sundancer in British Columbia waters. Nobody in the travel business is immune.

Hotels, theme parks, car rental companies, sightseeing operators--all are having to pay higher insurance premiums for essential coverage.

The mishaps that have hit the travel industry in the last couple of years have contributed mightily to the situation. They have helped deplete the supply of funds available to cover the real and potential losses.

Court Decisions

Another important contributor is recent court decisions.

At the low end of the scale, small-claims courts have indicated a tendency to look on the travel agent and wholesaler as "big business" and the plaintiff, regardless of economic standing, as victim.

At the high end, multimillion-dollar awards are sometimes arrived at emotionally, rather than objectively, another factor making insurance carriers think twice about travel and other businesses.

In the long run, insurance costs us all. In the present environment, it may cost us a lot of travel suppliers.

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