Insurers bracing for a wave of claims

Insurance premiums could rise to cover the cost of compensating passengers for the soaring number of lost bags, the Telegraph reported today.

The newspaper quoted analysts as saying that insurers are bracing themselves for a wave of claims following the baggage problem that has engulfed the aviation industry and British Airways in particular.

Lost luggage costs the travel industry an estimated £50 million a year but indications are that this figure could rise sharply this year. Norwich Union has seen a 40 per cent rise in baggage claims in the first six months of the year, while Insureandgo has experienced an 85 per cent rise.

Figures from the Association of European Airlines showed that British Airways was losing more bags than any other airline, with more than 300,000 failing to appear on the baggage belt between April and June.

Even worse news is expected when the next batch of figures is produced covering the height of the summer holiday season, when problems at Heathrow in particular have got worse.

A spokesman for the Association of British Insurers said: "If we see a big increase in claims there could be an impact on premiums. Should individual companies see a significant rise they will have to look long and hard at their prices."

Kevin Ryan, an insurance analyst with ING "It was not just the cost of settling claims that could drive up the price of policies, but the staff time needed to complete the work.

"Premiums will have to go up as a result of this," he said. "It used to be rare to lose a bag but now you hear of people losing all sorts of stuff. I think it is sensible to avoid checking in a bag.

"One of the reasons travel insurance is cheap is because you can buy it online but once you start needing people to pick up the phone and badger people it becomes considerably more expensive."

Industry sources said the cost of covering lost and delayed luggage could add £1 to policies.

A family of four pays about £135 for a 12-month policy with worldwide cover.

Since 2003 policies have been increasing by about six per cent a year but that rise has slowed to about 4.5 per cent.

The hope for holidaymakers is that companies hold off pushing up premiums in what has become an increasingly competitive market.

Although insurers can claim up to £800 per passenger from the airlines under the Montreal Convention, getting the money back is expensive.

Perry Wilson, the managing director of Insureandgo, said if holidaymakers wanted to avoid premiums going up they should pursue the airlines rather than claiming on their policies.

The prospect of premiums going up alarmed the main consumer watchdog, the Air Transport Users' Council. "We would be disappointed if companies used this as an excuse to put up the cost of premiums," a spokesman said.