Before purchasing travel insurance, check your current insurance policies to find out which insurer would pay first and how that payment will affect your maximum lifetime benefit. It may be best to purchase supplemental travel health insurance from your current health insurance provider, even if it is more expensive than a separate travel insurance policy, to avoid a possible reduction in your lifetime maximum benefit.
A Canadian case study
In March 2016, the Canadian Broadcasting Corporation published an article that focused on the complex and important issues of first payer and subrogation clauses in travel insurance policies. The article tells the story of a Canadian couple who purchased travel health insurance, went on vacation to the US, and experienced a catastrophic health problem. The wife contracted a life-threatening infection and was hospitalized. When she was healthy enough to travel home, they filed a claim and the travel insurance company paid.
However, what the couple did not know was that the travel insurance company, like almost all insurance underwriters everywhere, included a subrogation clause and a first payer clause in their policy certificate, allowing them to the company to collect part of the claim money. partner’s extended health insurance provider: the insurer that pays for treatment that is not fully covered by Canada’s national health plan. That payment featured the wife’s maximum lifetime benefit of CDN 500,000, reducing it by more than CDN 97,000.
For someone who hopes to live many more years, who is 67 years old, this could be disastrous as they may run out of insurance money to pay for prescriptions, physical therapy and possibly other treatments received outside their home province.
First payer clauses
First payer clauses are common in the insurance industry. Short-term policies, such as travel insurance or collision damage waiver insurance for your rental car, will generally pay a claim only after your long-term policies pay. This means that your health insurance, car insurance, or owner’s insurance company will pay first, and unpaid claims will be handled by the travel insurance company or car rental company.
If you make a claim against a travel insurer or car rental company, the first payment clause will likely apply. In the case of auto insurance claims, the worst that can happen would be the cancellation of your auto insurance policy due to excessive claims. Health insurance, as our example above shows, can be more problematic.
How Surrogacy Works
The standard subrogation clause in a travel insurance policy certificate looks like this:
«To the extent that the Insurer pays for a Loss suffered by an Insured, the Insurer will be responsible for the rights and resources that the Insured had in relation to the Loss. This is known as surrogacy. The Insured must help the Insurer to preserve its rights against those responsible for its Loss. This may involve signing any document and taking any other action that the Insurer may reasonably require. (Source: TravelGuard)
This clause gives your travel insurer permission to request compensation from other insurers or parties that may be considered first payers on your claim, either because the parties were at fault (i.e. legally liable) or because the insurance companies they were named as the first payers on your travel insurance policy. By agreeing to a subrogation clause, you are giving the insurance company permission to act on your behalf to contact other insurers and obtain this reward.
Subrogation is not limited to travel insurance claims.
If you are in a car accident, for example, your insurance company may pay for damage to your car or for your medical treatments, but, if the other driver is found to be at fault, your insurance company will ask the driver’s insurer to they reimburse you for those expenses, sometimes without telling you.
Depending on where you live and what type of insurance coverage you have, first payer clauses and subrogation agreements may have no effect on your future insurance benefits, or they may significantly affect your maximum lifetime benefit.
Residents of different countries face different travel insurance problems
UK citizens enjoy reciprocal health insurance arrangements with most countries in the European Economic Area and with Switzerland and Australia. Consequently, travel insurance providers may refuse to pay medical claims submitted by UK travelers who do not obtain a European Health Insurance Card (EHIC) before traveling or do not enroll in the Medicare system (health insurance national) from Australia when seeking medical care there. Limited reciprocity agreements with several other countries may allow UK residents to obtain free or subsidized health care while traveling; see the National Health Service website for details.
I live in the United States, and after reading the aforementioned CBC article, I reviewed all the available information on policies and benefits for my health insurance plan. As far as I know, I don’t have a lifetime limit on benefits, at least as long as I can afford this plan. My health insurer would have to pay first if I purchased a travel insurance policy and filed a claim, but I would not lose future benefits as part of this process. Canadian travelers with extended health insurance policies are in a completely different situation.
Note that the issues that affected the Canadian couple in the CBC article mentioned above are related to the fact that Canadian citizens can, and often do, purchase extended health insurance coverage in addition to the national insurance program. of health that all citizens receive. That coverage comes with a lifetime maximum benefit and does not necessarily cover all costs incurred while traveling outside of your home province.
The couple described in the CBC article could have looked at the travel insurance tips page on the website of their extended health plan provider, Pacific Blue Cross, and read the following travel plan information: “If you have a Extended Health Plan with Pacific Blue Cross, your travel plan will be the first payer. This protects the lifetime limit of your extended health plan. They could have read the certificate of the travel insurance policy and looked for subrogation and first payer clauses. They could also have talked to the travel insurance company and asked about the payment processes, but, like many of us, they didn’t know enough about the first payer and subrogation clauses to start asking the right questions.
