Money news, advice and predictions for savers and spenders.
By Jeremy Gates
As more than 150,000 Britons stranded by the volcanic ash crisis finally return, many will be clutching a fistful of bills which pose a formidable challenge for travel insurers.
There are 165 travel insurance products in an industry worth £700 million a year. However, no-one knows how many will pay for the mayhem created by the volcano if initial claims to airlines and tour operators are rebuffed.
Bob Atkinson, travel expert at Moneysupermarket.com, says: "The reaction of many insurers was extremely disappointing, with the majority not covering policyholders for flight cancellation - just advising them to contact their airline.
"I hope this is the wake-up call the industry needs to have comprehensive contingencies in place for such events."
The Association of British Insurers (ABI) said member firms were unlikely to class the eruption as an "act of God" to avoid claims that the issue is awkward for airlines.
This is because airlines' cover for "business interruption" usually applies when there has been physical damage to an aircraft or an airport - for which the risks are reasonably predictable and therefore insurable.
Weather events, such as snow storms or fog that close airports for limited periods, are not covered. An ash cloud shutdown is probably not covered either.
Although Ryanair dropped a plan to limit compensation to the amount each passenger originally paid for their flight, there is scope for big arguments about bills for living costs and alternative transport which many have incurred.
While agreeing to pay "the reasonable receipted expenses of disrupted passengers", Ryanair chief executive Michael O'Leary remains critical of EU regulations forcing airlines to pay when services are disrupted beyond their control.
Mr O'Leary says: "While competitor ferry, coach and train operators are obliged to reimburse passengers reasonable expenses, this reimbursement is limited to the ticket price paid to those operators.
"Yet airlines are required by regulation to meet potentially-unlimited expenses in circumstances where there has been a catastrophic closure of European airspace over the past seven days, as EU governments and regulators wrongly applied a blanket ban on flights over European airspace."
To some extent, many travel insurers could be in the same bind as budget airlines: Having slashed prices by taking more of their business online, they may lack resources to settle bills heading their way.
Mr Atkinson adds: "The knock-on effect of this situation could have ramifications in the future, as pressure on airlines mounts to pay millions in compensation to passengers.
"I wouldn't discount the failure of some airlines as a result. Anyone who has booked travel plans for later in the year may find they need to claim on their insurance should their holiday plans end in disarray."
While airlines are obliged by EU regulations to offer a full refund or a suitable transfer to another flight, and tour operators must bring customers back as best they can, bills for additional parts of lost holidays - including accommodation and car hire - will go to insurers.
Insurers can offer a 'reasonable fee' for incurred costs, rather than the sky-high taxi and train fares seen in Europe this week.
Graeme Trudgill, at the British Insurance Brokers Association (BIBA), says: "Some companies indicate a willingness to help with all aspects of claims submitted - others say it isn't covered at all.
"Some companies think it is in the spirit of their policies to see the events of the past week as "adverse weather" and will honour claims in various areas: Costs of delay and cancellation, accommodation, irrecoverable loss of a deposit and compensation for costs of being stranded."
HSBC, M&S Money and First Direct say they will pay for disrupted travel - provided clients have first contacted their airline or tour operator to see what assistance is available from them.
The decision means customers with policies from HSBC Premier and Advance, M&S Premium Club and firstdirectory are covered.
Chubb and Hiscox have also indicated a willingness to pay, but AXA is among those declining to do so.
Saga offers a maximum £215 for delays of outward flights - provided customers check in for flights in line with original booking conditions.
Saga spokesman Paul Green says: "If there are other associated costs that cannot be cancelled without charge, Saga customers should obtain a letter from the airline to confirm a flight was cancelled due to the weather and Saga will honour all claims of this nature."
Mr Trudgill adds: "Insurers try to be as flexible as possible with each claim. When a flight is not operating, they may suggest using an alternative flight from the same region instead of making a claim.
"The vital thing is to use the emergency number detailed in your policy. To some extent, the industry is learning lessons which can help in future."
However, Mr Trudgill thinks the Financial Ombudsman Service will decide many disputed insurance claims in the coming months.
Top tips to help travellers through the turbulent months ahead.
:: Buy a policy based on its quality rather than its price.
Bob Atkinson says: "Travel insurance is now firmly on the agenda for British holidaymakers. Recent experiences highlight the importance of choosing the right policy and we have seen a significant shift in the number of Brits looking for premium policies too - quality policies with more comprehensive levels of cover for trip delay, scheduled airline failure and end supplier failure."
BIBA Protect policies, underwritten by Tokio Marine Europe Insurance, are available from BIBA brokers.
:: Use expert advice to find the right policy.
At Exeter-based travel insurer World First, managing director Martin Rothwell says: "Take out travel insurance as soon as you book a holiday - and ask the important questions which mean you get the right cover.
"Don't be guided entirely by price - a cheap travel insurance policy is no good if it only covers £500 for cancellation when your holiday is costing £2,000 per person."
World First specialises in cover for pre-existing medical conditions, but Mr Rothwell says it is vital to check other details too.
:: Consider the added protection of package holidays over independent travel.
Major operators - notably Thomson and Thomas Cook - have taken the lead in rescuing stranded travellers, while smaller travel firms in the Association of Independent Tour Operators (AITO) have ingeniously pooled resources to hire coaches and buses from Eastern Europe, Spain and Portugal, and train travel home from Turkey.
AITO chairman Derek Moore says: "The situation is unprecedented and it highlights the benefits of booking with a tour operator. We have a duty of care to our passengers and we are doing our utmost to repatriate people."
:: Check individual excesses which may be applied in the event of any claim.
Mr Rothwell says: "The industry standard is £60, but with some insurers it could exceed £200 per person."
:: Set a minimal level for cover.
Moneysupermarket.com suggests minimum cover should be £2 million for medical expenses; £1 million for personal liability; £3,000 cancellation - or enough to cover the cost of your holiday; £1500 baggage and £250 for cash and policy excesses under £100. Cover for scheduled airline failure and end supplier failure is also desirable.
Which? recommends using a firm which belongs to the Financial Ombudsman Service to rule on disputes.
Mr Atkinson says that policies may change in the wake of the ash cloud. He adds: "We may see the introduction of specific exclusions to cover such unusual events or even increases in premiums.
"After the failure of some airlines, many insurers responded with enhanced products, and I would hope to see the industry responding in a similar way - by developing products which do what they are supposed to do."
:: Information: BIBA: 0870 950 1790 and www.biba.org.uk; World First: 0845 908 0161 and www.world-first.co.uk.
Poundnotes
:: The surprise jump in inflation to 3.40%, measured by the Consumer Price Index (CPI), means basic-rate taxpayers must find a savings account paying 4.25% to avoid losing money on their nest egg, according to Moneyfacts.co.uk.
Michelle Slade, at Moneyfacts.co.uk, also revealed that a higher-rate taxpayer will need an account paying 5.64% to avoid seeing their savings eroded.
She says: "Savers are more inclined to invest in fixed-rate bonds to achieve a better return, but to beat tax and inflation you must commit funds for at least three years".
:: Investors are putting money back into commercial property, according to wealth manager HFM Columbus, as one leading index shows a return of nearly 20% over nine months since the market bottomed last summer.
HFM Columbus says SWIP Property Trust and M&G Property Portfolio are good examples of large, well-diversified and prudently-managed funds which haven't had to suspend redemptions in the past couple of years.
Information: HFM Columbus: 01932 870000 and www.hfmcolumbus.com.
:: Sainsbury's Home Insurance offers £50 of Sainsbury's shopping vouchers to new customers with a Nectar card applying for combined buildings and contents cover.
New customers also benefit from a 15% discount, plus an additional 5% discount for online applications, and will be able to take advantage of double Nectar points on Sainsbury's shopping for two years.
Also, anyone spending £50 a week at Sainsbury's would receive a week's free shopping (£52) of Nectar points a year.
Information: Sainsbury's Finance: 0500 405 060 and www.sainsburysfinance.co.uk.
:: Are you missing a trick by not meeting your bank manager? Lloyds TSB says 47% of adults have never met their bank manager, but almost 70% who recently called in found the meeting beneficial.
Lloyds TSB is determined to raise the profile of its bank managers and says its research has shown "a real demand for the heyday of the bank manager to return".
So that's why my own branch recently asked my wife to persuade me to make a visit because it lacked an "accurate record" of my signature. I have banked with Lloyds since June 1965.
:: High five savers
Phone No Rate Account Period Deposit Interest paid
State Bank of India 0207 454 4315 5.00% (F) Hi Return Fixed Deposit Five Years £1,000 Yly
Nationwide BS 0800 302010 4.75% (F) Fixed Rate Bond Five Years £1 Yly
Secure Trust Bank 0800 408 2020 3.25% 120 Day Notice Issue 1 120 Days £1,000 Quarterly
Santander www.santander.co.uk 3.20% Flexible ISA 2 Instant £1 Yly
Barclays Bank 0800 494949 3.10% Golden ISA Issue 2 Instant £1 Mly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
First Direct 0845 610 0100 2.39% variable for term 65% £499 Yes
ING Direct (UK) 0845 603 8888 2.50% (rem) to 31/05/12 60% None
HSBC 0800 494999 2.99% to 31/07/12 70% £999 Yes
Norwich & Peterboro BS 0845 300 2522 3.15% for three years 75% £695 Yes
Saffron BS 0800 072 1100 3.49% for term 80% £495 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
