Travel insurance is very popular this year. So are claims.

However, this change is hitting the travel industry, which has suffered two years of job losses and severe capacity constraints as it tries to bounce back. Staff shortages and training bottlenecks are prompting some airlines to cut flights, while European airports are overwhelmed by increased travel demand.

London’s Heathrow Airport last month decided to limit passengers departing from the hub and asked airlines to cancel flights to and from the airport. US carriers including Alaska Airlines Inc.

and JetBlue Airways Corporation

Flights are down due in part to staff shortages. Delta Air Lines is one example of chaos at airports Inc.

After a passenger flight was canceled, he flew 1,000 delayed bags to the US on a jet.

Cover-Extra Group Ltd. is part of the Zurich Insurance Group,

He said the lack of flight availability is doubling the claims to bring the customers home. Overall, he estimates that the cost of expanding coverage to include Covid-19 now accounts for 30% to 40% of the total risk costs associated with travel insurance.

Allianz SE said it was already receiving more claims for problems after the outbreak. About a quarter of cancellation and cancellation claims are related to Covid-19, according to Daniel Durazzo, a spokesman for Allianz Partners, the insurer’s division.

“Operational challenges faced by travel providers have led to an increase in claims for travel delays and baggage issues,” he said.

Another headache for insurers is inflation. Air fares have risen sharply this year as carriers look to offset higher energy costs and workers’ wage demands. Some business class tickets are nearly double what they cost before the outbreak. Higher costs hurt insurers when they have to reimburse customers for canceled flights.

Return and air-ambulance costs are much higher than they were before the outbreak, reflecting greater fuel costs, additional regulatory requirements and safety measures, Cover-Moore said.

Travel insurance is likely to be an unprofitable business line for most providers this year, said Marcos Alvarez, head of insurance at Credit RS Morningstar.

He thinks that insurers may respond in the short term by increasing prices by 20% to 30%, on top of the increases implemented earlier this year, although it is not clear whether even this will guarantee a profit. Some companies may decide to limit coverage or charge extra for trip interruptions and cancellations.

Others may leave the travel-insurance business altogether, he said. Last year, Bupa Group stopped selling travel insurance in two of its businesses, partly due to complications caused by Covid.

“Premium growth is positive for insurance companies, but only as long as claims grow less than expected,” Mr. Alvarez said.

Travel insurance is a small part of the overall revenue for many providers, so the financial impact of higher claim costs cannot be severe. Moreover, analysts and insurers see positive trends for the industry beyond the immediate turmoil.

One is that the pandemic has increased awareness of the benefits of travel insurance among age groups that were previously unlikely to purchase a policy. If the number of Covid-19 cases decreases and travel disruptions decrease, that business could become sticky.

In the year After significant contraction in 2020, the global travel insurance market’s total written premiums will rise 13% to $17.6 billion in 2021, according to DBRS Morningstar data. It now expects total written premiums to grow to $60 billion by 2030, which could bring huge profits to the industry if airlines and airports overcome operational hurdles.

French insurance AXA on

Currently, most travel insurance contracts in the industry include Covid-19 coverage, resulting in increased prices. Even so, average travel insurance is up 100 percent compared to 2019.

Eric Morazin, senior vice president of international travel at AXA Partners, the insurer’s division, said: “As the crisis is global, long and deadly, we expect this trend to continue in 2023 and possibly beyond.” “Travelers are very concerned about their safety and security during their travels.”

Of the 11 million Australians planning to travel overseas in the next year, 87% plan to take out travel insurance, according to a recent survey by Cover-More. The highest rates were among those over 60, although 84% of travelers under 30 indicated they would buy a policy.

“For the younger group, this represents a material increase where historically three-quarters of travelers under the age of 30 took out travel insurance,” a Cover-More spokesman said.

Write Alice Uribe at alice.uribe@wsj.com