American Express late last month was preparing to notify corporate cardholders that it has restricted travel accident insurance coverage, but raised the benefit to $350,000 from $200,000. Escalating insurance costs have forced American Express to reduce its coverage from "door-to-door" to "common carrier," meaning cardholders are covered in the event of air, land or water licensed-vehicle accidents but not, for example, while walking to a meeting.
According to a spokeswoman, American Express reduced its coverage in lieu of passing "quadrupled" costs on to its clients. "We reviewed a lot of options, but our commitment was to maintain substantial business travel accident insurance as a core component," she said.
Earlier in January, American Express Global Corporate Services president Ed Gilligan told Business Travel News that his company was "in a wrestling match" with its insurance vendors, who were seeking to increase premiums and reduce coverage following the events of Sept. 11. "We're focused on security and piece of mind, and insurance plays a big part of that," he said. Gilligan also noted that "all our competitors offer air flight insurance, but ours is 24-hour coverage during the business trip." Now that American Express offers "common carrier" coverage like most of its competitors, the world's largest corporate card vendor has lost an advantage—but that doesn't mean its competition does not also have changes in store.
Other vendors contacted last month by Business Travel News had not made major changes, but some were aware of the upward cost pressure and noted the possibility that things could change as their contracts expire. Amex confirmed that its insurance arrangements had come up for renewal.
According to a spokesman for Salt Lake City-based GE Capital Financial Inc., "We have not seen what Amex is talking about, but that doesn't mean it's not out there."
Senior vice president of client relations Cynthia Smith of JPMorgan Chase, whose Commercial Card Services division also is based in Salt Lake City, said, "We have had conversations regarding increases in rates, but at this time we don't see that happening and we will continue to ensure our price stays stable. Our goal would be to handle it internally and not impact the customer."
Some changes are in the works at Diners Club International in New York, but an executive there said the changes will not be as substantial as those made by American Express.
According to the American Express spokeswoman, all card vendors will have to adjust to a new insurance industry regulation that prohibits coverage related to biological, chemical or nuclear hazards.
Still unclear is the extent to which such changes and potential cost increases will impact corporate travel management programs. According to a handful of industry consultants, insurance coverage is an important, but not essential, component of the corporate card product. Some policies exclude certain types of vehicles, and some coverage—known as secondary—kicks in only after personal or corporate coverage is exhausted, depending on the terms.
But whether corporate buyers can decline standard insurance offerings in favor of better pricing is a matter of some disagreement. According to consultant Bob Langsfeld of the Corporate Solutions Group in Incline Village, Nev., "It's not a show-stopper, but we have found that if you decline the insurance offered by a corporate card and more commonly a rental car vendor, it does impact your pricing," he said. "We've negotiated it out before. Will the vendor give all the savings back to you? Probably not, but anyway it's worth a couple of basis points, and if costs are going up, there's no reason a travel manager shouldn't consider it."
Basis points are a financial measure used to allocate card costs and, potentially, client rebates that incorporate a number of factors including client performance and credit worthiness. One hundred basis points equals 1 percent.
"Insurance can play a large part and you can equate it to basis points for a reduction or increase," said Carol Salcito, president of Norwalk, Conn.-based Management Alternatives. "All insurance rates are going up and the providers will have to pass the cost on to the buyer or distributor."
But Jim Coufal, a senior consultant with Key Biscayne, Fla.-based TCG Consulting, said rising rates are not impacting clients and that insurance is "a perk," but not something buyers can price out.
The American Express spokeswoman echoed that sentiment, saying insurance is "automatic" with the Amex card and industry regulations preclude clients from electing or not electing coverage. However, sources at GE Capital and JPMorgan both indicated that clients can forego the coverage for better pricing.