Unfortunately, while Mr and Mrs Smit were travelling overseas in July 2017, Mrs Smit became ill with influenza and diarrhoea. Mrs Smit saw a doctor and incurred medical expenses of $356.32 USD.
Mr and Mrs Smit paid for the medical expenses using a travel debit card they had loaded USDs onto before travelling. Mr and Mrs Smit locked in the rate applied by the travel debit card provider at the time they loaded the USDs.
Mr and Mrs Smit submitted a claim to their travel insurer to recover the costs of the medical expenses.
Mr and Mrs Smit did not accept the insurer’s claim settlement figure
The travel insurer accepted the claim and paid Mr and Mrs Smit $341.69 NZD. This amount was calculated by taking the general Oanda.com international currency converter exchange rate on the day the medical expenses were incurred ($356.32 USD = $491.69 NZD). The insurer then deducted its $150 NZD excess.
Mr and Mrs Smit did not accept the insurer’s calculation. They said instead of using Oanda’s general exchange rate, the insurer should have used the rate the travel debit card provider had applied when loading their USDs (which was a less favourable rate than that shown by Oanda on the day the medical expenses were incurred).
In other words, Mr and Mrs Smit had paid more to purchase the USDs they then used to pay for the medical expenses, than they were being reimbursed for using the insurer’s method. Mr and Mrs Smit said they should have received $388.15 NZD from the insurer.
After exchanging emails with the insurer for a few months, Mr and Mrs Smit complained to FSCL.
We looked at the insurance policy wording. This had a clause confirming that when claims are paid, the rate of currency exchange applied is the rate at the time the customer incurs the expense.
We called Mr and Mrs Smit and explained the insurer had applied its policy correctly; it applied the rate of currency exchange on the day Mr and Mrs Smit incurred the medical expenses, not the day they purchased their USDs.
We also explained that the risk with using a travel debit card is that the exchange rate will move unfavourably, meaning people are effectively paying more when using the currency loaded on the card.
If Mr and Mrs Smit purchased anything else on the day the medical expenses were incurred using the USDs on their travel debit card, they would also have been effectively ‘paying more’. Conversely, if the exchange rate moved more favourably, Mr and Mrs Smit would have been ‘paying less’.
Mr and Mrs Smit accepted our explanation and discontinued their complaint. Once FSCL had opened an investigation of the complaint, it was resolved within a day.
Key insights for consumers
It is standard practice for a travel insurance company to apply the rate of currency exchange on the day you actually incur an expense. This is the most logical way for the insurance company to determine the amount of your claim settlement, because there is no way for it to know when you purchased the particular currency being converted (for example, Mr and Mrs Smit could have purchased their USDs several years previously).