Dear Straight Dope:
When I was a kid in the sixties (19 not 18) I remember lots of insurance booths in the airport terminals. I remember my parents actually purchasing insurance. Today I travel for business often and I haven't seen a single insurance booth. Where did they go? Were they banned (perhaps they scared the public)? Is there no market for this insurance? I admit that I don't know anyone who has been killed in a plane crash, but even more reason to sell policies: no payouts. I know that you can still purchase flight accident insurance. My question is why there are no longer booths, kiosks (or ATMs) hawking these policies.
SDStaff Gfactor replies:
First off, airport flight insurance sales weren’t banned. Colorado banned insurance vending machines after John Graham loaded his mother’s suitcase with dynamite and, flight insurance in hand, watched her board an aircraft at the Denver airport. Airport insurance sales remains legal as long as a person sells it to you (although its sales are now dwarfed by other types of insurance). And you’re right about the risk — the loss ratio (claims losses divided by premium income) for flight insurance has historically been one of the lowest. But I’m getting ahead of myself.
Flight insurance is almost as old as commercial flight itself. In 1919 The Travelers Insurance Company introduced a comprehensive insurance program for air risks. While aviation-related insurance had existed earlier — Lloyd’s of London introduced its White Wings policy in 1911 — this appears to be the first insurance that offered death and disability coverage for purchase by the passenger. Called “Trip Accident Ticket Insurance,” it took effect as soon as it was issued and the coverage expired at 4 am the next day. The first policies, called “Aero Tickets,” were issued to Woodrow Wilson and the Wright brothers by the Payne and Richardson agency. President Wilson got ticket number one, which provided $5,000 of accidental death or disability coverage for five dollars.
Insurers offered variations on this type of coverage until World War II. In the early stages it was sold by ticketing agents — there was no need for booths or vending machines. After the war, demand for commercial flights and commercial flight insurance spiked to the point that sales at ticketing counters were delaying flights. The flight insurance vending machine was created as a solution to the staffing shortage, and the first coin-operated insurance vending machines were installed at New York’s Central Air Terminal on October 4, 1946. Dedicated flight insurance counters staffed by insurance company employees followed in 1948. By 1963, travelers could buy insurance from three different insurers at most airports. If they bought policies from all three, they could get as much as $300,000 of coverage. So what happened to the booths?
While flight insurance is still sold at some airports, the vending machines and dedicated kiosks are less common. There are several reasons for this. First, high rents. Airports began doling out vending space to insurers in 1952, and things have gone downhill since. By 1960, a Senate Report found that in some cases airport rental fees equaled or exceeded the bidders’ gross premiums from the location. The report pointed out that the market was dominated by two or three insurers who bid up the airport rentals in order to keep new competitors out of the market. So even though the profit margin was high for flight insurance, the insurers didn’t reduce their prices because they were paying most of the profit to the airports, who benefited indirectly from the insurers’ efforts to prevent competitors from setting up more machines.
Second, the insurers began encountering competition from non-airport sources. By 1958, Diners Club was offering travel insurance to its cardholders, and by 1968, American Express had a plan that covered cardholders for flights purchased with their cards. The other cards eventually followed suit.
Third, they encountered some regulatory pressure. Regulators recognized that flight insurance had a very low loss ratio (at one point it was 6%, but typically it was around 25%), and started to require better deals for consumers. In 1970 the New York Insurance Department required insurance sellers to reduce their premiums by 60% or increase their benefits by a similar amount. Insurers appealed, lost, pulled out of New York, appealed some more, and then grudgingly capitulated.
Fourth, as flying became recognized as safe, fewer passengers bought policies. By 1996 sales were so sluggish and airport rents so high that the insurers saw airport sales as primarily an advertising benefit. Of course, demand increased after September 11, 2001, but by then consumer demands had changed. Currently travelers are interested in policies that cover them for losses caused by the interruption or cancellation of a trip and for expensive medical evacuation. And most travel insurance is now sold by travel agents and travel suppliers, like cruise lines. The era of kiosks is over.
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