Here’s what you should know about the pitfalls of buying travel insurance

At some stage over the weekend, the most-read story on the BBC website was about a young man who’d been involved in a motorbike accident on holiday and had his travel insurance claim rejected.

He’d bought the insurance through his bank Lloyds, presumably as part of one of their fee-paying bank accounts. The reason his claim was turned down was that the policy states it won’t cover people for trips of more than 31 days. And this young man had already been away for longer than that.

The victim – who was very badly injured and lucky to be alive – had accrued significant medical costs. However, he was lucky enough to have a proactive family who set up a fundraising page to cover these expenses – which, when I checked it on Saturday morning, had already blasted through its target of £20,000.

As a result, the story on the BBC was not an indignant tale about the unfairness of insurance. Instead, it was an earnest warning from the victim’s family about the importance of reading the small print on insurance policies.

Insurers up and down the country were no doubt delighted. This is exactly the narrative that they want to prevail. Although insurance policies are incredibly complicated – and often run to more than 20,000 words – it’s the customer’s responsibility to read and understand them in full. And if they don’t, hard luck.

Inconveniently for the insurance industry, this is not what either the regulations or the law require. The Consumer Rights Act 2015 states that customer-facing contracts need to be written in “plain and intelligible” language – a bar that most insurance policies fail. Furthermore, anything onerous needs to be brought prominently to the customer’s attention. In other words, a company is unlikely to be able to rely on something onerous that is buried in the small print – unless they’ve made it very clear to the customer at the time they bought the policy.

It’s not unreasonable at all that someone buying a worldwide annual travel insurance policy might think it would cover them for a lengthy trip abroad. And why shouldn’t it?

If an insurer wants to limit something as key as the length of time you can be away, then I would suggest it is incumbent on them to go much further than including it in a long list of exclusions that are thrown up in front of the customer when they buy the policy. It’s such an important clause – as it effectively leaves the customer with no cover once they hit day 32 abroad – that they should make sure they can have no doubt that the customer is aware.

Ideally, during the application process, the insurer should ask the customer if they plan on spending any more than 31 days on any trip over the next year. And if they say yes, they should let them know that the policy won’t cover them.

It’s obviously a little more complicated with insurance that comes packaged up with a bank account. Often, the purchase of the insurance can come several years before the trip. But that’s all the more reason to walk customers very carefully through the exclusions. I’d also suggest that customers should be required to answer a set of questions to renew the policy every year – just to remind them of those key exclusions, and to check the policy is still suitable.

In the case of Lloyds, when you apply for a packaged bank account, the list of benefits and exclusions for the travel insurance component are listed during the application process. But you need to open a drop-down menu to see them, and given there are several types of insurance included, there’s a lot to take in. It’s possible not to click on the drop-downs and still get the product set up without reading the summary documents – which I don’t think is good enough.

Personally, I’d recommend that the victim in the BBC story complains to the Ombudsman and tries to get his insurance claim paid. If he does, the £20,000 that’s been raised can be given to charity.

The whole episode highlights a real problem with today’s insurance market. Insurance products are incredibly complicated, yet insurers facilitate quick and easy purchase journeys that cater to the customer’s desire to get in and out the other side as quickly as possible.

The only way to improve customer understanding is to slow things down. Ask questions that engage them in relation to the exclusions, and make sure that by the end of the application, you can say you’ve done all you can to help them understand the benefits and limitations of what’s on offer.

The Financial Conduct Authority (FCA) calls this “positive friction”, and there are still very few good examples on display. The FCA’s new consumer duty rules come into force this summer, and they raise the bar once again on the responsibility of all financial services firms to ensure customers understand what they are buying.

So if you’ve had an insurance claim rejected – and the insurer points to a clause in the small print that you were not made aware of – my advice is to complain, and then escalate to the Financial Ombudsman Service. It’s up to insurers to help customers understand their products. And until they can demonstrate they are doing that, the benefit of the doubt must be given to customers.

James Daley is managing director of the consumer group Fairer Finance