10 years in travel insurance – didn’t time fly?
To mark the 100th issue of ITIJ and almost 10 years reporting on the issues and trends that have shaped this industry, we thought it would be interesting to take a look back over the last decade of travel insurance and see what has changed. As Fiona McDonald and Milan Korcok reveal, what is most surprising is what hasn’t changed
First published in ITIJ 100, May 2009
To mark the 100th issue of ITIJ and almost 10 years reporting on the issues and trends that have shaped this industry, we thought it would be interesting to take a look back over the last decade of travel insurance and see what has changed. As Fiona McDonald and Milan Korcok reveal, what is most surprising is what hasn’t changed
The UK: a positive approach
There are so many things that have changed in the British travel insurance market over the last 10 years. Here, Fiona McDonald of Europ Assistance gives an analysis of just how far things have progressed
The following represents a list of things that have moved on, developed or shifted in the UK insurance market since ITIJ was first published back in 1999. I’m sure you could add to this list, but the fundamental changes are covered by the following …
Distribution
The area where most has changed is technology and the evolution of the Internet. If we go back to 1999, a survey of UK travellers showed the following as the source of their travel insurance:
% |
|
Travel agent or tour operator |
62 |
Insurance company via telephone |
7 |
Insurance broker |
7 |
Your bank/building society |
4 |
Travel club or organisation |
4 |
Credit card provider |
3 |
Retail chain (eg Tesco/Boots) |
1 |
Other |
9 |
Don't know |
3 |
The dominance of the tour operator/travel agent route to market had already shrunk from the heady days when nearly 90 per cent of sales were through that channel, but the downwards trend had only just begun. A similar survey in 2008 showed the following:
% |
|
Direct operator |
26 |
Travel agent or tour operator |
19 |
Free cover with bank account etc |
15 |
Bank or building society |
12 |
Post Office |
8 |
Retailer |
5 |
Price comparison site |
5 |
Other |
5 |
Don't know |
5 |
Over the last decade, the number of sellers of travel insurance has grown exponentially. In 1999, only a couple of high street retailers were selling travel insurance; now, there are many more. Aggregator (price comparison) sites barely existed, but now with the majority of UK households having computer access, they have become significant players, and this trend is set to continue. Free cover provided with bank accounts and credit cards is much more prevalent and people’s awareness of that cover has increased. These changes have eroded travel agents’ and tour operators’ market share and have had a significant impact on price.
The last 10 years has seen increasing consolidation of these roles. Now, single companies design products, set rates, sell policies, handle claims and provide 24-hour assistance services
In fact, customers have become increasingly aware of the price they pay for their travel insurance and more often than not search for the best deals. This has increased pressure on margins, leading to customers paying lower prices for cover than they did 10 years ago. The key for us now is whether these changes will continue: will traditional sources of travel insurance for consumers continue to be eroded?
Regulation
In 1999, the Financial Services Authority (FSA) didn’t exist and anyone could sell travel insurance. Was this a good thing? In some ways, probably not. The quality of the explanation given to customers as to what was and what was not covered by their policies wasn’t always good. We’ve all seen the surveys that quoted travel agent staff saying ‘This will cover you for everything’. So little by little, the noose of regulation has tightened, and today travel insurance is subject to the same regulations as any other insurance.
From 1 January 2009, anyone selling travel insurance in the UK market is required to either be FSA registered or be an Appointed Representative (AR) of a registered company. Appointing a company as your representative carries onerous responsibilities, none least to ensure the AR is fully compliant with all FSA regulations. The Insurance Conduct of Business Sourcebook (ICOBS) sets out the standards companies are required to meet in selling insurance, and penalties for failure to comply can be extreme. Fines levied by the FSA to date have run into millions of pounds.
Whether this increase in regulation is a good thing or not is a matter of opinion. On the positive side, the regulations should ensure consistency of sales processes regardless of the source of the sale. Customers can expect fair treatment, and have key conditions and exclusions drawn to their attention, wherever they buy their policy. On the negative side, there’s no doubt that ensuring compliance with the new regulations has added costs to the sales process.
How much has this change in regulation cost? Each FSA registered company will have its own answer and each has had to decide how much of that cost can be passed on to customers. There’s no doubt that the increasing cost of regulation has added to pressure on profit margins experienced by many underwriters, though, and perhaps that explains the next dramatic change in the UK travel insurance market over the last 10 years.
Underwriters
A survey of the main providers of travel insurance into the UK market in 1998 showed the following companies and their share of the market:
Company name in 1999 |
% |
Company name now |
CGU (TIA) |
27 |
Norwich Union/Aviva |
Home & Overseas |
24 |
Zurich |
Bishopsgate |
14 |
Fortis |
GE |
13 |
|
Lloyd’s Underwriters |
10 |
|
Others |
12 |
A similar survey in 2008 shows the following providers:
% |
|
AXA |
27 |
Norwich Union |
14 |
AIG/New Hampshire |
11 |
RBS/UKI |
13 |
Fortis |
9 |
Europ Assistance |
7 |
Mondial |
5 |
FirstAssist |
4 |
Others |
11 |
We can see that some companies have left the travel insurance market (Zurich and GE), some new companies have entered (AXA, AIG, UKI etc) and market shares have shifted dramatically, often due to changes in the distribution channels noted above. What we see today is a wider spread of providers, which increases competition. However, despite the increasing costs noted under the Regulation section above, the net prices charged by underwriters remains unchanged over the last 10 years, and in many cases have reduced. But more on that later.
Even companies who have remained in the market have changed the channels through which their policies are sold. In 1999, Norwich Union (then CGU) and Fortis (then Bishopsgate) sold most of their products through the travel trade. Today, Norwich Union is a major provider of ‘free’ travel insurance with bank accounts and credit cards, while Fortis provides policies to the Post Office. Furthermore, some companies only provided services to underwriters back in 1999 (for example, Europ Assistance, Mondial and FirstAssist), but these companies are now underwriters in their own right, carrying risk as well as handling claims and providing emergency assistance services.
It's still possible for a 65-year-old travelling out of the country for 30 days to get full services insurance for $3.25 per day
While companies now operating in the travel insurance market are diverse, most have one thing in common, which represents a significant shift over the last 10 years, and that is having their service provision in-house rather than outsourced.
Service providers
If we look back 10 years, the servicing of travel insurance was fragmented. Underwriters produced policy wordings and set rates. Intermediaries sold policies to the public – sometimes several layers of intermediaries could be involved. Independent claims handling companies dealt with claims arising from policies sold, while other companies provided 24-hour emergency assistance services, helping customers abroad and getting them home.
The last 10 years has seen increasing consolidation of these roles. Now, single companies design products, set rates, sell policies, handle claims and provide 24-hour assistance services. Few underwriters today outsource any element of their after-sales service. AXA, AIG, RBS/UKI, Fortis, Europ Assistance and Mondial all have in-house claims handling and 24-hour assistance, and don’t outsource these functions. Keeping services in-house allows underwriters to control costs more rigorously, keeping profits within the companies. As a result of these changes, the number of companies operating in the travel insurance market has decreased significantly over the last 10 years.
Legislation
New laws have been brought into effect every year and travel insurers have had to ensure their contracts reflect these. Rather than go through a long list, let’s just focus on two significant pieces of legislation, one that is already in effect and one we can expect soon in the UK:
Gender Directive – Laws making discrimination illegal on grounds of gender were extended in the UK in 2007 to include provision of goods and services. We were impacted by these changes less in travel insurance than in some other classes of insurance, as we have never charged men and women different rates. So at first we thought we wouldn’t be affected by this new piece of EU legislation when it was enacted in UK law. However, we soon found a nasty surprise buried in the detail of the new laws. This made it illegal to treat women less favourably because of pregnancy. Initially, we thought we would have to remove all pregnancy related exclusions from policies, which would have led to us having to cover a woman travelling right up to the expected delivery date of her baby.
Later legal opinions advised this wasn’t necessary, but that we could no longer ask questions for medical screening purposes about the pregnancy. From the end of December 2008 (when the change took effect) all pregnancy related questions have been removed from medical screening systems. My company has already had a claim from a woman who would previously have had to declare her condition when buying her policy, but under the new laws could not be asked about her pregnancy. These claims can be considerable.
Equalities Bill – In the UK we expect new legislation in the next year relating to age discrimination. This may require the removal of all age limits from travel insurance policies. If this happens, the future of annual multi-trip policies will come under serious review. The risk of writing a policy for a full year of travel, to any destination, for a customer aged in their 90s, with no opportunity to review any changes in medical condition after policy inception, is significantly greater than most underwriters will be willing to cover. But if we offer annual multi-trip policies at all, we may have no choice.
Travel patterns
All the changes we have discussed so far have been internal to our market, but at the same time, customers have been changing what they do and what they want from us. If we look at 1999, the number of trips made by UK residents, and their destinations, were as follows:
Visits |
Thousands |
% |
North America |
4,733 |
9% |
Europe |
43,620 |
81% |
Other countries |
5,529 |
10% |
Total |
53,882 |
By 2007 (latest year for which figures are available) the numbers had changed as follows:
Visits |
Thousands |
% |
Change since 1999 |
North America |
4,587 |
7% |
-3% |
Europe |
55,188 |
79% |
27% |
Other countries |
9,675 |
14% |
75% |
Total |
69,450 |
29% |
The number of visits by UK residents to countries abroad has increased by 29 per cent since 1999. The rise of low cost airlines has had a significant impact on this growth, and is probably a significant factor in the 27-per-cent growth seen in Europe. What is interesting is the growth of 75 per cent seen in trips to the rest of the world. Customers are travelling further afield than before, travelling more often, and taking part in more activities when they get there.
This has resulted in changes in the type of product we provide to the UK market. Niche products for backpackers, winter sports, and other specialist markets have grown. There has also been a significant increase in the proportion of annual multi-trip policies sold compared to single trip policies. In 1999, 80 per cent of all policies sold were single trip. By 2008, this had dropped to 53 per cent.
The increase in popularity of the annual multi-trip product has had two main drivers. First, customers plan to have several trips in one year, so it’s convenient to buy a single policy to cover all trips. Second, the price of annual multi-trip policies has reduced dramatically over the years.
The question for us all is whether this trend will continue. With the economy in recession, demand for travel abroad is falling, and consequently, demand for annual policies may also fall. This combined with questions that future legislation on age discrimination raise, may make annual policies less popular in the years to come.
What hasn’t changed?
From all the above, you may be wondering if there is anything that hasn’t changed! Well, in general, two things have stayed similar over the last 10 years: cover and price. If you look at what’s covered by a travel insurance policy now, it looks virtually the same as it did 10 years ago. There’s cover for medical expenses up to several million pounds, cover for cancellation and travel delay, luggage and luggage delay, missed departure, personal accident, personal liability, and so forth. So, is it time for innovation?
With regards to price, the only changes have generally been downwards! While to some extent this could be justified as we got better at managing claims costs, and up to last year the strength of the pound against other currencies, this has now come to an end. The loss in value of the pound over the last year has hit all underwriters to some degree. But with medical costs all payable in foreign currencies, and most of those in euros or US dollars, even companies that managed to hedge against exchange rates will be hit going forward.
Add to this that we have probably squeezed as many savings from claims handling and cost containment processes as we can, and as an industry we are now facing tough times. I can’t think of many products (other than computers) for which a customer pays less now than 10 years ago. The time may now have come for one last change in travel insurance – the price!
North America: out of the shadows
Just how different has the development of the travel insurance industry in North America been compared to that of the UK and Europe? Milan Korcok has the answer
Unlike Europe, where travel insurance is almost obligatory (many cruise lines even make it mandatory), Americans and Canadians have a more relaxed attitude towards its purchase. Look at different age groups, regions, educational and occupational levels, and you see vastly different sensitivities about the need for travel insurance. In a 2006 survey, the US Travel Insurance Association (USTIA) reported that prior to 9/11, only 10 per cent of leisure travellers bought travel insurance, while in 2006 more than 30 per cent did so. It’s worth noting, however, that despite this threefold increase, another USTIA survey revealed that the vast majority who bought insurance did so mainly to protect their cash investment: trip cancellation, baggage, missed connections, or last-minute itinerary changes – medical or medical evacuation policies accounted for only four per cent of travel insurance sales, a stunning oversight that American insurers have failed to rectify by educational, promotional or other merchandising strategies even though by the end of 2007 Americans travelling on leisure trips spent more than $1.3 billion on travel insurance, representing 18 per cent more sales in 2007 over 2004.
Contrast this with Canada where just about half (49 per cent) of travellers polled in 2008 said they ‘always’ or ‘usually’ bought travel insurance for trips to the United States (for overseas trips that ratio was higher). Though that still leaves a lot of uninsured, Canadians have no illusions about how poorly their domestic first-dollar government health insurance covers them once they leave their own borders. Still, despite clear knowledge that uninsured travel out of the country can be hazardous to their economic health, half of travelling Canadians eschew it. And the younger the traveller, the more likely they are to neglect insurance. The invincibility factor, perhaps?
An evolving market
Few segments of the health insurance market have grown as expansively as has the private supplemental travel insurance industry in Canada over the past two decades. Prior to 1991, most provincial health insurance programmes would pay pretty well any bill they received for a travelling resident caught by medical emergency in a hospital in the US or overseas. There was no great need for much private supplemental coverage. Unless there was something egregious in the bill, it was paid: until a series of scandalous rip-offs was unearthed which showed that the Ontario Health Insurance Plan (OHIP) was being routinely billed for thousands of dollars per case for alcohol and drug dependency treatments in US clinics – some of them in sunny California, or Arizona or the bucolic mountain countryside of New England. The axe fell and OHIP slapped a limit of $400 per day on out-of-country hospital payments (compared to the $1,500 or so being charged in the US at that time; much more now). Except that it fell not only on the rip-off perpetrators, but on all Canadian residents travelling anywhere – people who thought their universal medicare was something they could rely on no matter where they went.
Other provinces followed OHIP and with that one single act, cheap travel insurance – that up to then could be bought for a dollar a day or less from three or four vendors standing alone in the business – was gone. Some provinces limited their out-of-country payments even more stringently than Ontario. British Columbia would pay no more than CA$75 per day – which it still does. As a result of the government retreat, hundreds of brokers and travel insurance entrepreneurs flooded into the void, while travellers saw premiums soar six-fold over the next three years. Insurers saw quickly that keeping up with US hospital costs was going to be an expensive business.
Nonetheless, brokers, associations, affinity groups, insurance companies, underwriters, banks, motor associations, and other entrepreneurs flocked to the new business line they saw paved with gold. Of course, the euphoria didn’t last as some began to realize how little they knew about travel insurance. Even such global giants as North American Life Insurance and Prudential took their licks and retreated from the field after sustaining unacceptable losses.
Since then, the travel insurance industry in Canada has consolidated, stabilised and is now focused around a handful of insurers and/or wholesalers (among the largest being RBC, Manulife, ETFS, Travel Underwriters, Co-operators Life Insurance, and Mondial), most of these germinating their own emergency assistance, cost containment, case management and managed care subsidiaries – keeping as much business as possible in house.
In Canada, over the past decade, premiums have escalated gradually, most to keep pace with currency differentials between Canada and the US that skip and soar overnight, as well as the rising cost of healthcare in the US, which is payable in US dollars. Given these dynamics, the setting of premiums can sometimes be a crapshoot. But aside from the first sudden rush of price increases in the early 1990s following government coverage shutdowns, premium fluctuations have been modest – three to five per cent up or down per year, depending on market forces. It’s still possible for a 65-year-old travelling out of the country for 30 days to get full service insurance for $3.25 per day (including $2 million cover for medical and evacuation cover), or for a 30-year-old travelling for three weeks to be covered for $2.30 a day.
A market still expanding
At the end of 2007, the USTIA reported that 67 million Americans spent more than $1.3 billion on travel insurance in 2006, 18 per cent more than 2004. But only four per cent of sales volume went for medical or medical evacuation policies. By comparison, Canada’s population of close to 34 million this year will have made more than 20 million leisure trips out of the country and, extrapolating from surveys, almost half bought supplemental health insurance. From what began as a peripheral industry providing mostly supplemental services such as private nursing, repatriation, in-room television and telephone – items that weren’t covered by government administered medicare – sales have grown exponentially.
Martha Turnbull, president of Canada’s Travel Health Insurance Association (THIA) told ITIJ that the estimated value of written premiums for the travel insurance market in Canada had grown by 2007 to more than $1,09 billion (CAD = .80 US) according to various industry sources. Of that, $313,454,000 was attributable to travel agency sales, $147,554,000 to insurance brokers, $93,898,000 to associations, $340,000,000 to employee benefit plans and the remainder to banks and financial institutions, direct consumer sales by insurance companies, intranet sales, airline and cruise line sales, and credit card programmes.
Some American insurance companies ... have high limit medical evacuation and repatriation policies in their inventory, but few Americans know they are available and they rely instead on their patchwork of domestic, employer-sponsored health insurance even while travelling
The relative values of travel insurance in the US and Canada can be explained by the fact that Canadian travel insurance is heavily weighted to cover comprehensive medical care and repatriation benefits as core items. Many US trip cancellation packages carry some medical emergency and assistance services cover, but their $10,000 or $25,000 limits are no match for the $1 million-plus policies that provide virtually unlimited cover, repatriation, medical underwriting and direct provider payments benefits routinely offered by Canadian and European insurers.
Some American insurance companies such as Travel Guard, Access America, HTH Worldwide, TravelSafe and others have high limit medical evacuation and repatriation policies in their inventory, but few Americans know they are available and they rely instead on their patchwork of domestic, employer-sponsored health insurance even while travelling. The 2006 USTIA survey also showed a continuing reluctance by Americans to assume the need for medical benefits as a primary reason for buying insurance. USTIA past president Jon Ansell said of the results of the survey when it was released: “…we are concerned about how few people realize their healthcare policies provide very little, if any, out-of-country medical coverage, and some don’t cover you if you are travelling more than 100 miles from home.” He noted also that even among travel insurance buyers, only 50 per cent were aware of the availability of medical evacuation insurance.
In Canada, the critical mass of travel insurance cost gravitates around the medical needs of long term out-of-country stays of the snowbird – those aged 55 years and older travelling out of the country for at least 90 consecutive days (and in many cases for 182 days – half the year). This single age group accounts for a disproportionately large share of the $1.03-billion travel insurance payout. And the larger this group gets and the longer they stay out of the country, the higher their premiums must go.
This past year, there were an estimated 750,000 such snowbird trips, and according to projections by the Conference Board of Canada, the average premiums in 2006 for travellers aged 55 to 64 was $330.77, and $1,005.77 for those aged 65 and older. Yet for the oldest sector in this seniors’ population, premiums can easily be double that, especially if the travellers have one or two pre-existing conditions such as high blood pressure, or a recent hospitalization or medical intervention. It’s significant also that though only 49 per cent of Canadian travellers said they always or usually buy travel insurance, more than 68 per cent of snowbirds said they routinely did so. And the older the snowbirds, the greater those numbers.
Travel insurers sell softly
Unlike the UK, where travel insurance is openly promoted at retail outlets like Tesco or Boots as a necessity of travel, Americans are much more subdued at ‘hawking’ travel insurance: Canadians less so, but still genteel in their approach. The US media has often taken a generally hostile view of travel insurance, seeing it as duplicative of homeowners policies, credit cards, or flight or cruise ticket products. Consumer Reports said simply, two years ago, that travel insurance was a waste of money – a headline that was parroted by the Canadian media even though the two environments are completely different.
Brad Finckle, then president of the USTIA, admitted the US media was generally uninformed about the true value of travel insurance, especially the medical and evacuation features. But promoting a more positive message of the value of medical benefits has been a poor sell so far even though private employer-sponsored American health insurance provides little, if any, out-of-country coverage. Even those Americans who have private health insurance policies (46 million do not) have no medical repatriation benefits (unless they specifically bought them). They are also responsible for payments to foreign providers with the hope of reimbursement later. And getting back home after an emergency remains their responsibility.
Stand-alone air ambulance companies selling repatriation only are making some inroads into this market but still represent only a small slice of the overall medical service needs of American travellers. While in Canada, air ambulance features are standard benefits in virtually all travel policies.
US Medicare policies for people aged 65 and over do not cover out-of-country benefits at all – except in extremely rare cases where the closest emergency room may be in a foreign country i.e. Canada or Mexico. Although most Medicare beneficiaries buy supplemental insurance policies that do offer some out-of-country benefits, they are quite limited and leave most holders with the responsibility of paying their providers up front. As for the people who have no health insurance, going without is an everyday hazard anyway – at home or in Italy.
Little public education
In neither the US nor Canada has public education about the value of travel insurance (particularly medical benefits) been aggressively pursued by the industry itself. Neither USTIA nor THIA have dedicated public/consumer education programmes, and neither of their websites have ‘go to’ information about what travel insurance is about, how to shop for it, what to look for, why it is as essential as one’s passport, or even directories of where to find members offering retail products. There has been no ‘sell’ factor in the promotion of their own products by travel insurers, except for a handful of vendors promoting their individual products to discrete audiences. This has been left largely to governments advising travellers of the value of having insurance when they travel (in the usual bureaucratese that one’s eyes prefer to avert), or to the media – which depending on the angle of the day can just as easily be negative about the product as positive.
A wary eye on regulation
In both the US and Canada, the relatively small size of the travel insurance industry has kept it out of the regulatory spotlight. For now. Unlike recent moves in the UK market requiring anyone selling travel insurance to be either registered with the Financial Services Authority or to be an Appointed Representative of a registered company, travel insurance vendors in the US and Canada have as a distinct industry subgroup escaped heavy regulation so far.
In the US, the tug of war between state and federal control of insurance regulation continues into the Obama administration with worrisome consequences.
In Canada, in 2008, the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) cast a spotlight on incidental sellers of insurance (which includes travel insurance) urging them to be more transparent with customers, to more clearly explain benefits, exclusions and restriction, and to be more forthright in explaining disclosure requirements. In response, THIA agreed to work closely with CCIR/CISRO in aiming towards these goals, and to discuss further where licensing of incidental sellers was adequate or required upgrading. The bottom line to the agreement was that THIA, representing the travel insurance industry in Canada, wanted to be at the table when anything concerning the selling of travel insurance and the welfare of its clients was discussed.
In a very short time, the travel insurance industry has developed a great array of products, services and expertise to protect millions of travellers worldwide, and it has done so at relatively low cost. But now the challenge appears to be to persuade travellers that these products are truly life savers, are essential to anyone carrying a passport across any border, and can be trusted to do what they are purported to do. Nobody can do that as well as can the travel insurance industry itself – should it summon the impetus to do so.