Implications of Heathrow Airport's Temporary Closure on Travel Insurers

This commentary discusses the potential implications for the global travel insurance market of the temporary closure of London's Heathrow Airport following a fire in nearby electrical substation.

Key highlights include:

-- The temporary closure of Heathrow Airport will have a ripple effect in commercial air travel for days given its global hub status.

-- We estimate that travel insurance claims will cost the industry tens of millions of dollars but will remain manageable.

-- Trip cancellation, trip interruption, and trip delay will be the coverages mostly affected by this incident.

-- Travel insurers will face a sharp spike in claims handling for week, creating operational strain.

"The Heathrow Airport incident will likely trigger a sharp and sudden increase in travel insurance claims related to trip delays, cancellations, and disrupted connections. For insurers, the financial exposure could be considerable", said Marcos Alvarez, Managing Director, Global Financial Institution Ratings. "The relatively low contribution of the travel insurance business to overall revenues will help mitigate the impact on insurance groups' credit profiles. However, this incident could cause a temporary increase in the cost of travel insurance and/or the restriction of certain coverages, particularly for travel involving critical air hubs."