Pior to the early ‘90s, when government health insurance paid for most out-of-country medical emergencies, private travel insurance was a niche business, covering mainly incidental costs like hospital TV and phone charges, room upgrades, and private nursing if necessary. But since then, for almost 30 years, the accelerating flight of Canada’s snowbirds – winter migrators seeking warmer climes – to Florida, Arizona, Cuba, Mexico, Hawaii and beyond has fueled a phenomenal growth in emergency medical travel insurance sales, peaking at CA$990 million in 2018 and projected soon to hit the $1 billion mark.
And then, Covid-19 hit the fan; and hundreds of thousands of snowbirds were arbitrarily ordered to return home before border restrictions and airline groundings left them trapped abroad and their travel insurance exclusions and limitations left them exposed to the encroaching plague. According to Canada Border Services Agency, 959,000 Canadian citizens and 43,890 legal permanent residents (non-citizens) heeded the warnings and returned by air and land between 14 and 20 March 2020. Many thousands, however, weren’t so lucky, and remained stranded abroad – some for weeks. Others voluntarily remained in their sanctuaries, convinced that tropical sun and clean ocean air protected them better than could face masks and social distancing. They could have been right.
In the nick of time
To massive cohorts of seniors, boomers and even defrosted millennials accustomed to crossing the ‘longest undefended border in the world’ as if by divine right, the government recall was a stern reminder that freedoms taken for granted can be fleeting. And to travel insurers, brokers, policy vendors and assistance service providers throughout Canada, the carnage was quick in coming.
If the pandemic had happened in January, it would have been a much different story
One major provider of snowbird insurance products summarised his return to the office as a sombre affair: “No sales. Dead phones. Between two to three million dollars in cancellations.” Still, he added, in the end, “snowbirds will continue doing what they have been doing for many years.”
Another broker prominent in the Canadian snowbird market for over 25 years, Dan Donnelly, President of Travel Insurance Office Inc., told ITIJ that he felt ‘lucky the pandemic happened in mid-March’ as many of his clients had already returned home after the winter season or were on their way when the government sanctions came down: “If the pandemic had happened in January, it would have been a much different story.”
He said that his firm refunded 10 to 15 per cent of their total sales volume for the season and gave full refunds to clients who didn’t have any claims. “We paid our refunds within 24 hours, which I am proud of,” he said. Donnelly added that a federal government fund designed to help businesses deal with mortgage and rent costs all helped, but ‘doesn’t come close to the loss of premium and profit’.
A marathon, not a sprint
The travel insurance industry has enjoyed almost 30 years of consistently buoyant growth. The Covid plague stopped it cold. Has the bubble burst? Can it regenerate? Can the industry regain the trust of a public that has been manhandled by forces it couldn’t understand – which has left it stranded, frightened, betrayed? Can the industry regain its momentum by offering a more skeptical public ‘the same old same old’? Or are more fundamental changes required to regain its buoyancy?
Steven Blanchard, President of Destination Travel Group, a provider in the Canadian snowbird market, believes this will continue to be ‘a difficult time’ for the industry, ‘with few sales, and expenses piling up’. However, he noted: “Once the non-essential travel ban is lifted, business should start to get better as people begin to understand that they can travel abroad safely.”
Nonetheless, Blanchard says he is ‘planning for a marathon, not a sprint’ to get there. And though he believes that the understanding and value of travel insurance has ‘gone up significantly’ amongst Canadians, he also anticipates that policy terms and conditions will have to change as a result of Covid, and that clearer exclusion language and definition on pandemics, as well as greater clarity for pandemic coverage, will be necessary.
Snowbird business looms large
According to WorldAtlas, Canadians are the world’s eighth most prolific travellers, taking an average of 4.20 leisure trips per year. And of those 4.20 trips, 3.20 are outbound to other countries. The Finns are ranked number one, with 7.70 trips per year, but only 1.70 of those are outbound (the rest are domestic). Americans are the second most frequent travellers, with 6.70 average trips per year, but only 0.20 are outbound.
Given that 85 to 90 per cent of Canadians live within 100 miles of their southern border, it’s not inconvenient for most of them to simply cross over, get connected to America’s vast Interstate Highway network, and drive to their vacation homes – although Conference Board of Canada (CBoC) surveys have, for several years, reported an increasing percentage of Canadian leisure travellers choosing overseas locations. Still, more than 60 per cent of Canadian leisure travellers ultimately head for the US, and many of those are seniors who spend from three to six months in the US per trip.
Coincidentally, these are the same travellers considered the most vulnerable to infection, not only to Covid-19, but for any other viruses or transmissible diseases that prey on elderly people with pre-existing chronic conditions such as heart disease, diabetes, respiratory ailments, or otherwise weakened immune systems.
Clearer exclusion language and definition on pandemics, as well as greater clarity for pandemic coverage, will be necessary
Jennifer Hendry, Senior Research Associate with the CBoC, reports that when Canada’s oldest boomers (there are nine million of them) turn 75 by the end of 2021, there will be 10 million millennials coming along behind them to join their ranks, and this cohort will then comprise 27 per cent of the population. Moreover, surveys consistently show that about 80 per cent of this growing contingent buy travel insurance. CBoC data also shows that since 2008, snowbird trip volumes grew almost four times the rate of overall outbound activity; and since 2000, the volume of snowbird trips to the US has increased by 190 per cent. Significantly, in 2018, 76.6 per cent of Canadians surveyed had some travel insurance on their last trip out of the country and, that same year, premium purchases of travel insurance surpassed $990 million, with forecasts for higher sales to follow.
Roll the dice
Each year, Canadian travel insurers face several imponderables beyond their control when setting their premium prices for the coming season. Fluctuating currency exchange rates are chief among them. In effect, they must roll the dice, hoping that the premiums they collect in cheaper Canadian dollars are sufficient to cover America’s high-end medical and hospital costs payable in more expensive US dollars.
Each year, Canadian travel insurers face several imponderables beyond their control when setting their premium prices for the coming season. Fluctuating currency exchange rates are chief among them
This is not a level playing field, and the goal posts move often. Currently, the Canadian dollar is valued at approximately US$0.77. A year ago, it was valued at about US$0.76 or $0.77 cents. In 2014, it was valued on par with the US dollar, or even as high as US$1.06. But, in 2016, it sank as low as US$0.68. And these fluctuations occur for the most arcane reasons, not easy to predict. Consequently, setting premium rates has been likened to a crapshoot.
J. Ross Quigley, President of Medipac International Inc., the insurance provider for the 100,000-member strong Canadian Snowbird Association, is a tough pragmatist who has witnessed snowbirds persist with their annual travels through many currency exchange cycles. He admits it may take a stout heart to commit to a four-, five- or six-month stay with one’s purchasing power sliced back indiscriminately; but snowbirds are resolute, and so they keep coming – perhaps shortening their stay occasionally, but still keeping to their annual treks southbound.
“Most snowbirds have a home in the US or a regular long-term rental. These are their homes and they will all be going back to them,” said Quigley. “I often say that snowbirding is not travel, it is a lifestyle, and will not be given up easily. The happy hour get-togethers are probably dead for a while, but they will return in time. The Canada/US border will also open soon, but the medical checks will be rigorous.”
Can confidence be regained?
If travel insurers are to regain their momentum, their customers will first have to reverse their eroding confidence in the Canadian economy, which had weakened by the end of 2019, and was then brutalised by the arrival of Covid-19. The Bloomberg Nanos Canadian Confidence Index in April showed household confidence in the economy had sunk to the lowest level since the Great Recession in 2009. The CBoC Consumer Confidence Index also plunged to its ‘lowest levels ever’ in April, though it did register a slight bounce in early May as the weather warmed up. Nonetheless, 36 per cent of survey respondents expected their finances to worsen over the next six months, and three quarters were convinced it was a bad time to make any major purchases. And when asked if they planned to take any overnight trips more than 80 kilometres (about 50 miles) away over the summer of 2020 (up to October 31), only 45 per cent said yes – typically, 75 to 80 per cent normally answer ‘yes’ to that question.
If travel insurers are to regain their momentum, their customers will first have to reverse their eroding confidence in the Canadian economy
In addition, a further recent extension of the border closure to 21 June effected by Canadian Prime Minister Justin Trudeau and US President Donald Trump has not only shortened what remained of the summer season, but also raised the anxiety levels of insurers and their customers even more.
What now? Has Covid indeed burst Canada’s travel insurance bubble? Is this merely a blip in an overall upward trajectory? Or has Covid shaken the foundations of an industry – and customer base – searching for fundamental change?
Patrick Robinson, Chief Executive Officer of British Columbia-based travel insurance provider TUGO, admits change will not come easily. “Significant change is not something that can be done in isolation,” he insisted. He said that it won’t be easy for suppliers who are ‘understandably vested in their current models’, nor for regulators and insurers ‘for whom change looks more like challenge and risk than reward’, as this could result in travellers who find it hard to engage with their insurance as much as they should. “But other industries have taken complex elements and found ways to re-imagine and simplify people’s engagement with and use of them, with massive success,” Robinson asserted. “But it will take vision and co-operation.” ■