This piece was originally published in the International Health and Travel Insurance Journal
The global travel and tourism sector is at a crossroads. While the industry continues its post-pandemic resurgence, it faces growing disruption: an escalating climate crisis, increased political uncertainty, the transformative force of artificial intelligence (AI), shifting health paradigms, and evolving traveller expectations are creating a scenario where business as usual is no longer feasible. Traditional travel insurance models, with their often rigid structures and outdated risk assessments, are under mounting pressure and are unlikely to be sufficient for this increasingly volatile world of interconnected risks. While leading insurers and tech firms are making impressive strides with individual solutions, these innovations often remain fragmented. A collective, cross-sectoral effort is needed to meet future needs.
The industry stands at a critical juncture. Inaction could lead to a fragmented future where comprehensive coverage is a luxury for the few, gatekept by AI. The alternative is a deliberately transformative path: a resilient, equitable, and inclusive ecosystem forged through collaboration, data sovereignty, and responsible innovation.
This analysis draws on a futures workshop organised by Edinburgh Futures Institute and Aon in London, April 2025. Senior stakeholders from travel and insurance industries, alongside academics, explored future scenarios through structured scenario planning. The analysis first explores the limitations of current insurance models and then, in the second part, provides a roadmap for creating sustainable future business models.
The volatile future of travel
The allure of travel is an enduring human constant. As a sector contributing over 10% to global GDP, its current resurgence injects vital energy into the world economy. Yet this revival unfolds against a backdrop of unprecedented disruption. The accelerating climate crisis is reshaping destinations, while the expectations of travellers, particularly digitally native millennials and Gen Z, are undergoing a seismic shift. They demand personalisation, flexibility, and sustainable options. Concurrently, new waves of tourists from emerging economies are creating mass tourism pressures, even as extreme weather alters the viability of traditional holiday seasons.
As a sector contributing over 10% to global GDP, travel’s current resurgence injects vital energy into the world economy
AI is now an indispensable co-pilot for the modern traveller, yet it presents a complex array of risks. AI-powered platforms excel at crafting personalised itineraries, but this convenience is shadowed by potential downsides. These algorithms can create ‘filter bubbles’, diminishing authentic discovery. More critically, flawed AI recommendations could have serious consequences, potentially guiding travellers into unsafe situations by suggesting an ill-advised route or misinterpreting local conditions. This danger stems from reliance on outdated data or an inability to process rapidly changing real-world conditions.
Climate change is profoundly reshaping the industry. Intensified extreme weather events, such as hurricanes, wildfires, heatwaves, and floods, damage infrastructure, disrupt travel, and degrade iconic natural attractions. The 2023 wildfires in Rhodes and Maui, for example, triggered mass evacuations and a surge in claims. Climate-driven disruptions, from melting airport runways in the UK to atmospheric rivers in California, can trigger a cascade of covered claims, including trip cancellation and emergency medical expenses.
Fluctuating geopolitical landscapes can manifest as sudden visa changes or airspace closures, leaving travellers stranded. Beyond logistics, a growing segment of conscientious travellers now make destination choices based on ethical considerations, avoiding countries where the political leadership or human rights record is perceived negatively.
Parallel to this, the global health paradigm has been fundamentally altered. The legacy of the Covid-19 pandemic has embedded a new layer of volatility into travel, with the persistent threat of snap quarantines, sudden changes to vaccination or testing mandates, and varying international standards for proof-of-health status. This has been coupled with a much broader shift in traveller consciousness towards wellbeing. Today’s traveller has heightened expectations for mental health support, access to remote digital health services like telemedicine, and robust duty of care from employers and travel providers.
Adding to this is political uncertainty. Fluctuating geopolitical landscapes can manifest as sudden visa changes or airspace closures, leaving travellers stranded. Beyond logistics, a growing segment of conscientious travellers now make destination choices based on ethical considerations, avoiding countries where the political leadership or human rights record is perceived negatively.
Travel is no longer predictable. In this transformative era, the institution of travel insurance must itself undergo a profound evolution or face the risk of irrelevance or unaffordability.
Traditional travel insurance at a breaking point?
For travel insurance, this new reality demands a systemic reinvention of product design, data strategies, and risk models. Legacy one-size-fits-all policies are ill-equipped for this complexity. Travellers often overpay for irrelevant coverage or find themselves underprotected against the novel risks they face. Insurers can no longer rely on static underwriting and broad actuarial assumptions. Very few are offering adaptive products that provide real-time responsiveness to emerging risks or configurable cover based on individual profiles.
The rise of AI-powered travel tools introduces new dimensions of liability. As algorithms shape itineraries and offer advice, they become de facto risk influencers. When AI systems fail, the consequences fall on travellers and potentially their insurers. Traditional definitions of ‘foreseeable risk’ are no longer adequate; insurers must now consider the influence of third-party algorithms. Without a recalibration of liability frameworks, these AI risks will test the boundaries of the industry’s risk appetite.
Meanwhile, climate change is rendering reliable risk assessments obsolete. A reactive insurance product is unlikely to meet expectations when extreme weather can make destinations unsafe overnight. Policies rarely offer climate-contingent flexibility, such as covering cancellations or rerouting in response to real-time hazard data.
The new health-aware landscape presents a significant challenge, as standard insurance products are often not designed to cover the nuances of a mental health crisis or to provide proactive assistance in navigating complex, fast-changing public health directives.
Some innovation is emerging. Parametric insurance, which pays out based on predefined triggers (e.g. wind speed, rainfall levels), offers automatic, hassle-free payments. In the UK, some policies now trigger real-time payouts or lounge access for flight delays over three hours. However, these products remain exceptions rather than mainstream and suffer from ‘basis risk’: a policy might trigger at 100mph winds, but 95mph winds could still cause severe disruption, leaving the traveller with an uncovered loss.
High-risk destinations could see tourism decline as insurance costs become prohibitive, with severe economic consequences
Unlike property insurance, which withdraws from high-risk geographies, travel insurance uses ‘temporal exclusion’ through the ‘foreseeability date’ doctrine. Insurers set a date when an event like a wildfire or hurricane becomes ‘known’. Any policy purchased after this cutoff excludes claims related to that event. For example, for the Maui fires, Travelex set 8 August 2023 as the cutoff. As climate forecasting improves, this window for purchasing pre-emptive insurance shrinks, transferring more last-minute cancellation risk directly to travellers. A destination like Maui is not uninsurable year-round, but it became uninsurable for the peril of wildfire for any policy purchased after the event had become known.
Political instability further compounds this volatility. From abrupt visa restrictions to sudden airspace closures, travellers today face an unprecedented level of uncertainty that is typically not covered. To stay relevant, insurance products must account for geopolitical flux as a core risk. Real-time coverage activation and concierge support are currently luxury add-ons, if available at all. Furthermore, products that offer flexibility based on emerging human rights concerns or political developments are not yet available.
Structural limits, uninsurability, and signs of progress
These limitations carry significant consequences. Rising systemic risk may push traditional insurance models towards their structural limits. As climate disruption, political instability, and health emergencies become more frequent and interconnected, insurers may struggle to diversify risk effectively.
As a result, premiums could become unaffordable, or insurers might withdraw coverage altogether from high-risk destinations. Recent reports from leading reinsurers warn that as extreme weather frequency rises, premiums must increase, which will affect the level of protection people are willing or able to purchase. The market is seeing an accessibility crisis: nearly half of all travel policies offer no standard coverage for natural catastrophes, and ‘cancel for any reason’ add-ons are expensive (adding 50% plus to premiums) while providing only partial reimbursement (50–75%).
This creates the risk of market stratification: premium, tech-enabled products for the few who can afford them, and underinsurance for the rest. High-risk destinations could see tourism decline as insurance costs become prohibitive, with severe economic consequences. For consumers, existing policies are unlikely to meet emerging needs. Designed around static assumptions, they struggle to accommodate the complexity, volatility, and personalisation now expected. Without significant innovation, many offerings will fail to provide meaningful protection in a world of rapid change.
Despite this, there are signs of progress. Insurers are developing sophisticated travel assistance apps with real-time safety alerts and geo-tracking. More flexible ‘pay-as-you-go’ policies offer tailored coverage, a significant improvement over traditional models. The ski industry provides another example, where insurers now commonly include ‘lack of snow’ benefits, representing a successful pricing-in of chronic, manageable risks. This contrasts with the ‘pulling-out’ strategy for acute catastrophes like wildfires.
However, much more is needed. The second part of this article, next month, will map out how the industry can collaborate to build a travel insurance future that is resilient, equitable, and inclusive.
