First published in ITIJ 133, February 2012
As the global economy lurches from crisis to crisis, Canadian travel insurers appear to be spinning off in an orbit all their own, achieving record numbers of policy sales and premium earnings, all nourished by the demands of a resilient market that refuses to consider out-of-country leisure travel a discretionary activity. It’s not all bad news out there, as Milan Korcok finds out
With Canadians expected to make almost 29 million leisure trips out of the country in 2012 (out of a total national population of approximately 35 million), and with an economy that has remained relatively unblemished by the recent economic tremors that have ravaged its neighbours to the south and overseas, travel insurers have good reason to remain upbeat into the next 12 months and well beyond. According to data provided to ITIJ by David Redekop, principal research associate of the Conference Board of Canada (CBoC), sales of travel insurance policies have rebounded to record levels since the 2009 ‘recession plagued’ season, growing by 11 per cent in 2010 and an estimated eight per cent in 2011. That puts sales on track to score up CA$532,000,000 million in individual trip policy sales in 2012 (75 per cent more than just five years earlier) in addition to annual, multi-trip plan sales, which in 2010 were valued at $195 million – more than 20-per-cent higher than the previous year.
To Canadian travel insurance companies and their vendors, existing sales are reasons enough for optimism. But equally important is that there are potentially millions more clients moving into the marketplace who will have an even greater propensity to travel. Though there is no readily available data comparing the foreign travel patterns of Canadians vis-a-vis Americans, many travel analysts believe that Canadians travel out of the country twice as much as do their American counterparts on a per capita basis. Canadians also have much more incentive to buy travel insurance than do Americans, largely for their out-of-country medical benefits, which many insured Americans have under their private domestic health insurance (see box out).
The most prominent segment of Canada’s population to have remained untapped by insurers to date is that of young travellers. According to an RBC survey conducted last summer by Ipsos Reid, 44 per cent of Canadians aged 18 to 35 years old said they ‘rarely’ or ‘never’ buy travel insurance when travelling to the United States, more than a third of them believing they don’t need such insurance because their provincial government health plans will cover them while abroad. Seniors know better: most surveys concur that over 80 per cent of Canadians over 55 years of age who travel out of the country are covered by some form of travel insurance because they know by experience how little their governments do cover once they leave the country. Clearly, inculcating young travellers with what their seniors know by experience can open up the existing market even more (see box out).
many travel analysts believe that Canadians travel out of the country twice as much as do their American counterparts on a per capita basis
Tim Bzowey, vice president of travel insurance for RBC, said in a press statement accompanying the survey release: “Young travellers often forget about travel insurance in the excitement of planning a trip. Travelling without insurance can have some serious consequences and since this age group tends to be more active when they travel, their chances of needing emergency medical care may be increased.”
CBoC’s Redekop elaborates further on youthful attitudes to travel insurance, attributing them largely to feelings of unawareness or invincibility. He describes the ‘unawares’ as people with jobs, houses and children, who may drive across the border for an evening or a day of shopping and don’t make the effort to go online or make a cell call to an agent to get coverage. “They are unaware of the significant risk they are taking when going across the border without coverage,” he says.
Then there are the young ‘invincibles’, whose parents end up paying for their children’s mistakes when they get into trouble. “Not having any assets to protect or families to worry about, the invincibles don’t even think about getting insurance,” he explains. Whatever their attitudes about travel insurance, the young ‘invincibles’ represent a potentially large slice of the remaining Canadian market as the 15-to-34-year age group represents more than 27 per cent of the total population. And that raises a major educational challenge for the travel insurance industry.
As the 2011 RBC poll revealed, despite the high penetration of travel insurance buyers among older age groups, Canadians still have a lot to learn about travel insurance, and the younger they are, the more they have to learn. According to the poll results, when asked if they understood what travel insurance covers, only 44.3 per cent in the 18-to -34-year age group said they believed they did; compared to 48 per cent in the 35 to 54 year age group; and to 60.5 per cent of those over-65.
Another potentially productive market for Canadian travel insurers identified by the CBoC is represented by friends and relatives visiting Canada (VFRs), a group forecast to grow to almost 1.6 million in 2012. VFRs will often have their travel insurance purchased for them by family or friends from Canadian vendors, which differentiates them from foreigners visiting Canada for pure pleasure purposes who usually buy their travel insurance in their home country from a tour operator, airline or independently. The CBoC estimates that the number of overseas trips to Canada by VFRs has grown by 39 per cent since 2002. Many travel insurers already offer plans for this growing group.
It is now approximately 20 years since Canada’s provincial governments, which fund the universal, national health insurance programme, eviscerated their benefits for out-of-country medical emergencies, leaving the field open for private insurers to provide supplementary coverage. Up until that time, many provincial health plans would simply pay out whatever medical bills travelling Canadians submitted from foreign hospitals or doctors. Travellers had no great need for insurance, which, for the most part, only paid for incidentals, such as private nursing or bedside telephones or TVs, which in those days were not standard issue in all hospital rooms. But when provinces cut back their per diem payments to foreign hospitals in the early 1990s, the floodgates were opened for travel insurers to provide munificent benefit packages to frightened travellers. And no segment of the population felt that fright more acutely than the hundreds of thousands of Canadian snowbirds who travelled south to Florida, Texas, Arizona and California for up to six months each year to escape Canada’s winters.
For some, it meant going from no premiums at all to as much as $20 or $30 a day – with the oldest and sickest paying the most; a pattern that exists today. And that’s the demographic group that keeps many insurers in the business: it’s a group they can count on because snowbirds have shown themselves to be tough, resilient travellers determined to enjoy their winter vacations in the south, where many have second homes, condos, rental properties, recreational vehicle commitments, bank accounts, social relationships and a deep-seated aversion to Canadian snowdrifts.
J. Ross Quigley, president of Medicare International, one of Canada’s largest providers of travel insurance to snowbirds, says that though snowbirds pay attention to travel trends, statistics and the variation in Canadian vs US dollar values (which in recent years have been trending favourably to Canada), they do so mostly ‘as curiosities’. He says: “The dollar, and for that matter insurance prices, can and will affect their lifestyle, but they will not change it. Snowbirds will go south.” And, as Quigley emphasises, the oncoming wave of boomers in their 50s will dramatically increase those numbers: “There are new snowbirds entering the market (now) but this is just the small crest of the wave … The high volume (age groups) are not here yet. The dramatic increases … are certainly coming.” He concludes: “Certainly, our market is expanding and, in a few short years, it will double and triple and then some more.”
The impending boom
Currently, Canada’s 65-to-79-year age group accounts for approximately 10 per cent of the population (approximately 3.6 million). But the oncoming wave of boomers, and such like, in the 50-to-64-year age group, coming into the ranks of snowbirds, accounts for 20 per cent of the population (over seven million). And this is the age group with the wealth, time, and passion to travel. Beyond is another wave of over five million pre-boomers in the 40-to-49-year age group (15 per cent of the population), many of whom already have parents who are experienced snowbirds, with tangible legacies such as condos and second homes to leave behind.
According to Statistics Canada, of the estimated 26,000,000 out-of-country leisure trips made by Canadians in 2010, approximately 980,000 trips were made by snowbirds (defined by the CBoC as those aged 56 and over, travelling out of the country for at least 31 consecutive nights). They have also shown the sharpest rate of increase in out-of-country travel, their trips increasing by 126 per cent between 2000 and 2010 (a compound average annual rate of 8.5 per cent), compared with a growth of 61 per cent for total outbound leisure trips for all age groups.
Furthermore, according to CBoC forecasts, total outbound leisure travel is expected to rise to 29,000,000 trips in 2012, with snowbird numbers accounting for over 1.1 million, possibly rising to as many as 1.8 million by 2021. That may sound like a small share, except that each snowbird trip accounts for a relatively long period of travel – up to 182 days for many; and each of those days represents a premium indexed to an age band subject to increased health risks and vulnerabilities. A relatively healthy 35-year-old can still buy travel insurance for less than $3.00 a day. A 70-year-old snowbird taking a couple of medications for high blood pressure and diabetes might pay three times that; an 85-year-old, seven or eight times. For one sale, that represents a big bang for the buck.
A relatively healthy 35-year-old can still buy travel insurance for less than $3.00 a day.
One of the key decisions travel insurers have to make each year is how to adjust their premiums to account for the rising cost of healthcare in the US, which is where the bulk of spending for medical services happens. Related to that is the value of the Canadian dollar vis a vis its American counterpart, which has fluctuated widely over the past 20 years, on occasion dropping to as low as US$0.62, but in much of 2010 and 2011 trading at close to par or above. Collecting Canadian premium dollars in October to cover payments to American hospitals in the US perhaps six months later is a risky game that has burned many Canadian insurers in the past when currency differentials were more volatile. But with Canada having survived the recent recession relatively intact, unemployment in the 7.5 per cent range (versus 8.6 in the US), banks stable, housing and mortgage markets strong, and government deficits favourable by G7 standards, the prospects for a strong Canadian dollar can continue to have a moderating effect on premiums across the age spectrum.
Overall, average premiums for individual single-trip plans for all age groups have moved within limited ranges over the years – growing by 1.5 per cent in 2010, and forecast to grow by two per cent in 2011 and 2.1 in 2012. Average single-trip premiums in 2010 for all age groups were $96.85, or 42 per cent higher than in 2000 ($67.91).
How much for how much?
According to the CBoC, of the 82 per cent of snowbirds who reported having some form of travel health coverage on their last foreign trip, 36 per cent travelled on an individual, single-trip plan, 21 per cent on an annual multi-trip plan, 30 per cent by employer or group plan, and only seven per cent on coverage provided by a premium credit card. (An annual multi-trip plan allows its purchasers to travel up to a specified number of days per trip, e.g. 15, 30, 60, any number of times throughout the year, with only one sign-up and application. It’s primarily designed for shorter-term, frequent travellers who want more flexibility than an annual single-destination trip.)
In 2010, Canadian snowbirds accounted for slightly fewer than four per cent of all out-of-country leisure trips, but they paid just over $189,000,000 in premiums for individual single-trip plans out of an estimated total of $454,000,000 individual single-trip plans for all age groups – almost 42 per cent. Most snowbirds prefer individual trip plans as they allow for longer trip durations and they usually have more pre-determined travel itineraries so they know exactly how many days worth of premiums they need to buy. But with younger, more mobile cohorts entering snowbird age groups, annual multi-trip plans are becoming more popular, having grown by an estimated 21 per cent in 2010 – to 120,000, worth $23.9 million, at an average premium of $199.
While individual plan premiums for all age groups averaged $96.86 in 2010, premiums for snowbirds aged 65 and up travelling for 31 to 60 days averaged $302.70; $616.61 for trips 61 to 90 days, and $1,185.26 for trips over 91 days. Of the $189,000,000 spent by all snowbirds for their individual plans in 2010, over $90,000,000 were spent by those over 65 staying longer than 90 days.
Clearly, Canada’s travel insurers will continue to have a solid foundation for growth as the snowbird and pre-snowbird populations expand not only their numbers, but their travel destinations. And given the large segments of the younger population still to be harnessed, the travel insurance market has nowhere to go but up.