The Financial Services Ombudsman Scheme is reminding Kiwis heading abroad to read their travel insurance policy after a family's claim was recently denied after their flight was cancelled.
According to the scheme, a New Zealand family visiting the UK were recently caught off guard by a misunderstanding which is becoming more common due to fuel shortages in the wake of the US and Israel's attacks on Iran and disruption to shipping in the Strait of Hormuz.
The family, whose names have been withheld, had just wrapped up their trip to the UK and were about to return to New Zealand when their flight was cancelled due to “operational requirements”.
After the flight was cancelled, the family then purchased replacement tickets with another airline at a significantly higher cost.
The original airline had refunded the cost of the original flights, which did not cover the cost of the new tickets.
The family then made a travel insurance claim to cover the difference – which was denied. The insurer said their policy excluded cover for transport provider cancellations, except in limited circumstances such as mechanical failure or strike.
The family then made a complaint through the scheme – which handles complaints about insurance and financial services. After the scheme investigated, it found the insurer was entitled to decline the claim and did not uphold the complaint.
The family was then left out of pocket for the fare difference between the original and replacement flights.
Why it was denied – and could become more regular
Insurance and Financial Services Ombudsman Karen Stevens said it’s common for travel insurance policies to exclude cancellations caused by the airline’s operational decisions.
“Cover is usually limited to clearly defined situations such as severe weather, industrial action, or mechanical failure. If those circumstances don’t apply, there may be no cover.”
Stevens said travellers should be aware flight cancellations due to fuel price increases would usually be classed as operational.
“If your flight is cancelled, your airline will usually refund you or give credit for the cost of your original flights. However, if the only alternative flights available cost more, you may have to pay the difference yourself,” she said.
“We could start to see this situation happening more if airlines continue to reduce flight schedules and cancel routes in response to higher fuel costs.”
What to do
Stevens recommended those booking travel insurance to read the cancellation and delay sections of their policy carefully and check the reason that their flight was cancelled if they intend to claim.
“Travel insurance can be very valuable, but it’s important to have realistic expectations about what it covers. Understanding your policy before you travel can help avoid unpleasant surprises,” she added.
The Financial Services Ombudsman Scheme said from July 1 2025, 17% of its disputes it has accepted has related to travel insurance.
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