Insurance Circular Letter No. 4 (2020)
March 6, 2020
All Authorized Property/Casualty Insurers and Licensed Travel Insurance Producers
Cancel For Any Reason Travel Benefits
STATUTORY AND REGULATORY REFERENCES: Insurance Law §§ 1101, 1113, and 3452
The purpose of this circular letter is to clarify for all authorized property/casualty insurers and licensed travel insurance producers (collectively, “Addressees”) the position of the Department of Financial Services (“DFS”) on (1) Cancel For Any Reason (“CFAR”) benefits in the travel context and (2) potential coverage for the novel coronavirus (“COVID-19”) under travel insurance policies. In summary, CFAR benefits may be sold in New York by an insurer if necessary or incidental to its travel insurance business. Non-insurers may also provide CFAR benefits if they are not sold as an insurance product. Further, COVID-19 may be a basis for trip cancellation/interruption under a travel insurance policy.
As the facts around the COVID-19 outbreak continue to evolve, there has been an increased demand from consumers for travel insurance, including CFAR benefits typically sold elsewhere as part of a travel protection plan that includes travel insurance coverage. These benefits are desirable because they give travelers the opportunity to cancel their travel plans, and be reimbursed for most of their travel expenses, for any reason not already covered by their travel insurance policy, which would include a concern of being exposed to COVID-19 during a trip.
CFAR benefits are more expensive than standard travel insurance. CFAR rates are 40% to 60% higher than standard travel insurance rates. Further, CFAR issuers typically impose additional fees upon cancellation. CFAR benefits also have time constraints, such as requirements to be purchased within several weeks of the initial payment for the trip and cancellation to occur no later than two or three days before the trip commences. Moreover, travelers typically receive only a 50% to 75% refund of their travel expenses.
Standard travel insurance policies typically provide coverage for trip cancellation/interruption due to various fortuitous events, but frequently exclude epidemics and pandemics. If epidemics or pandemics are covered, however, COVID-19 may qualify depending on how these terms are defined in the relevant policy.
III. CFAR Availability
Under New York law, CFAR benefits in the travel context do not technically qualify as insurance because the cancellation of a trip “for any reason” does not depend on the occurrence of fortuitous event. Accordingly, there are two alternatives for providing CFAR benefits to travelers in New York.
Insurers: Pursuant to New York Insurance Law § 1113, an insurer may sell CFAR benefits if it can demonstrate that the benefits are necessarily or properly incidental to the kinds of business that the insurer is authorized to write in New York. In addition, the insurer must make CFAR benefits generally available to consumers, without requiring the purchase of a standard insurance policy from the insurer. If CFAR benefits are sold to a consumer who is also purchasing a standard travel insurance policy, CFAR benefits must be reflected in a standalone contract that is separate from the insurance policy.
As the market has evolved, DFS appreciates that CFAR benefits have become a significant part of the travel insurance market. For example, the National Association of Insurance Commissioners’ Travel Insurance Model Act authorizes insurers to sell CFAR benefits, while recognizing that they are not insurance. Accordingly, we expect that insurers should be able to demonstrate that CFAR benefits are necessarily incidental to being able to provide a full array of consumer protections so long as those benefits are not conditioned on a fortuitous event, and are generally available and not dependent on the purchase of a standard insurance policy from the insurer.1
Travel Agents: Any travel agent or other non-insurer may sell CFAR benefits so long as those benefits are not conditioned on a fortuitous event. We remind travel agents that they cannot provide travel insurance or require it to be written as a condition to issuance of the CFAR contract.
IV. Coverage of COVID-19 in a Travel Insurance Policy
DFS also reminds Addressees that COVID-19 may be a covered peril under a travel insurance policy. Pursuant to Insurance Law § 3452, trip cancellation/interruption insurance is authorized as a property-type of insurance, regardless of the underlying reason for the cancellation/interruption so long as it is fortuitous.
Accordingly, authorized travel insurers may provide travel insurance that provides trip cancellation/interruption coverage if the insured’s trip is cancelled or interrupted due to an epidemic or pandemic. A travel insurer can also provide coverage specific to COVID-19. In either case, the trigger for coverage must be stated clearly in the policy. Nothing in the New York Insurance Law or regulations promulgated thereunder requires a travel insurance policy to exclude coverage for an epidemic or pandemic.
DFS intends this circular letter to provide clarity and guidance to Addressees about the opportunities to protect New York consumers by offering CFAR benefits or under standard travel insurance. Moreover, DFS encourages Addressees to offer these protections. DFS also expects Addressees to affirmatively provide clear guidance and information to their policyholders about their travel insurance policies, and to cooperate fully with anticipated specific requests from DFS in this regard.
Please direct any questions regarding this circular letter to Gerald Scattaglia, New York State Department of Financial Services, One State Street, New York, New York 10004 or by email at [email protected].
Deputy Superintendent – Property & Casualty Insurance
1 The New York Insurance Department, which since merged into DFS, had issued Office of General Counsel Opinion No. 10-02-06 on February 6, 2010, which considered CFAR benefits. That opinion discouraged the issuance of those benefits in New York, notwithstanding the alternatives described in this circular letter. We view that opinion as limited to the facts presented, namely whether CFAR benefits could be included in a travel insurance policy filed by an insurer.