An enterprising company is exploiting fears about ailing airlines with a new type of insurance that protects frequent flier freebies when an airline shuts down. However, some consumer advocates question the value of such coverage.
FlightPlan Inc., based in Colorado Springs, Colo., reports that the $79-a-year policy has been purchased by more than 25,000 people, mostly members of frequent flier programs at defunct Midway Airlines and troubled Continental Airlines and Trans World Airlines.
The insurance allows frequent fliers of a defunct air carrier to exchange their mileage points for free tickets on an alternate airline.
"They've done everything they said they'd do," said Chicago attorney Shale Lapping, who in February exchanged Midway mileage credit for a free round trip to Dallas on TWA.
The insurance is being underwritten by a syndicate at Lloyd's of London and sold through Citadel Risk Management of Fort Lauderdale, Fla., a so-called "surplus lines" broker that handles offbeat types of insurance. FlightPlan Inc. is marketing the AwardGuard insurance, for which it receives a fee.
Robert Hunter of the Alexandria, Va.-based National Insurance Consumer Organization said consumers should think twice about buying insurance to protect frequent flier miles. "You buy insurance to protect yourself should a catastrophic event happen to you," he said. "Losing your frequent flier miles does not sound like a financial catastrophe."
Hunter pointed out that when Eastern Airlines and Pan American World Airways folded, consumers lost few freebies because the frequent flier programs were taken over by other airlines. "Most frequent fliers haven't lost anything," Hunter said. The real winners, he said, are probably the firms involved in selling AwardGuard. "It sounds like a great way to make money."