I was rather surprised this week to read that the travel industry thinks the government should insure travellers against getting stuck in Australia, once a travel bubble is opened. The reason given was that insuring travellers to cover the costs of getting stuck overseas, if a country locks down, is too expensive and the government should be responsible for mitigating the effects of its policies on its citizens. This is going to be a crux point for quite a lot of potential travellers – you could get stuck in another country for an indeterminate length of time and have to cover all your own living costs.
I rather thought that the fundament of doing business is that you calculate the cost of the activity you want to perform and balance that against the price that people are prepared to pay. If the item turns out to be more expensive that the market is willing to bear, you avoid that business activity. I did not think that the appropriate next action might be asking the government to pay for it instead. The government might choose to pay for certain activities that the market is unwilling to cover, if such activities are in the interests of the nation, but it is going to be a broke government if it picks up all the items that businesses think are too expensive for them to supply!
To be fair, some insurers are saying that they can’t quantify the likelihood of lockdowns and therefore can’t cost products appropriately. I would have actually thought that was their core business – estimation of risk – so I am not convinced that quantification is not possible, any more than it is or is not possible for all sorts of other risks. For example, earthquakes. It is not possible in New Zealand to completely quantify the risk of fault movement in any place, as we only have detailed fault mapping in very small parts of the country. There can always be a fault we didn’t know about, as in the Canterbury Earthquakes. There are also many faults mapped where we don’t know their recurrence interval, or likely magnitude. However, that doesn’t appear to be stopping insurance companies providing earthquake cover.
This call from insurance companies for someone else to cover things they deem ‘too expensive’, reminded me of some of my interactions with investment firms. I had three different long term unit trust investments that I started in my early 20s. By my later 30s it was apparent that none of them was making money relative to inflation, and two were actually losing money. When I talked to the companies about this, they first told me that I was in the wrong products; except the products were the ones they had advised me I should buy! It became obvious that the returns were so poor because in good years one third of returns (before tax) were being taken as fees. In bad years, I was going backwards, effectively paying the companies to lose money for me. I suggested that the fees for investment advisors should be based on the returns they delivered to me – they could have a proportion of the returns – rather than on a set fee basis. The response was that they would not make enough money if they took this approach! My response was to withdraw my money from managed funds and swear never to go there again. The learning would seem to be that, if a company isn’t making enough money out of a transaction, a valid approach is to tell the customer that they ought to pay more so that the company can prosper.
As a tax payer, and thus funder of the government, I am not very enamoured with the idea that I should help reduce the financial risk of people choosing to travel overseas. I am particularly not enamoured when insurance companies tell me to subsidise other travellers, given that I loathe insurance companies following Canterbury Earthquake experience of them not paying out. International travel was once the province of the rich, it has become the norm for the middle class over the past three decades, but is still a dream for the global poor; is it a basic human right that governments should support?
The 1948 UN universal declaration of human rights, Article 13.1., states that everyone has the right to the freedom of movement and residence within the borders of each state, and everyone has the right to leave any country, including their own, and to return to that country. That declaration was made in a time when international tourism was not the norm, so likely did not consider all the downstream effects of its position. And there are another 26 rights to be upheld with the consequent complexity that promoting one right may impinge upon another right.
One’s conclusion could be that, if travel is a basic right, then governments should have been ensuring that all people have equal access to international travel, presumably through subsidies for those less well off. Such subsidies might impact the government’s ability to ensure the rights to education, a reasonable standard of living and social security – governments don’t have unlimited budgets (at least not until COVID quantitative easing came along). Actually, the government should be ensuring that people have equal access to domestic travel also – should that be subsidised for those less well off? Perhaps AirNZ should have a scheme where a portion of air fares purchased goes to pay for air fares for people who can’t afford them (my favourite guitar website, JustinGuitar, has instituted this for people to access the music on the pay for part of his website).
I started writing this piece from the point of view that the cost of international travel should be a limiting factor, which will be in the interests of the health of the population at present, and in the interests of the environment for the foreseeable future. However, if I ascribe to the Universal Declaration of Human Rights, I appear to have argued myself into a corner. What do you think?