The Great British drop-off?

As one of Britain’s 19th century prime ministers, Benjamin Disraeli, is reported to have said, there are lies, damned lies, and statistics, meaning not so much that stats are designed to deceive – although that can sometimes be the intent – but that they don’t always tell the entire story. Mark Allsopp, head of travel at Hood Group, has his doubts about the extent of the 2015 decline – much steeper than the fall experienced after the 2008/9 banking crash – highlighted in the report recently published by Wise Guy Reports. “I have read with interest the views coming out of various commentaries such as the Wise Guy market research report,” he says. “To some degree, I take these with a relative grain of salt, as quite often these market size estimates are derived from individual interviews that Mintel, Verdict Financial and others have with various industry figures. I believe the main source of this number has historically been derived from returns collated by the Association of British Insurers (ABI), since unlike some other lines of insurance, there is no other reporting or collation of individual leisure travel as a line of insurance. While ABI members are obliged to provide returns, and previously accounted for a larger proportion of the UK market than they do now, other non-ABI members may not lodge numbers. So this missing sector can be estimated or lost. In the last three to four years, the proportion of the UK market underwritten via managing general agents and non-UK registered insurers has risen dramatically, meaning this market share may go unrecognised in some analysis. While the market has certainly changed in recent years, I don’t believe the total market value has dropped to the extent being reported.” InsureCancer specialises in providing insurance for travellers with advanced cancer, and owner Dr Krish Shastri told ITIJ that he is ‘slightly skeptical’ about the statistics flagged up in the Wise Guy report. In fact, as chairman of Britain’s Travel Underwriters Group, he’s more than slightly skeptical – he thinks the findings are ‘flawed’. “Reports such as these,” he says, “are designed to generate headlines. It’s sometimes helpful to look at the base statistics to be sure that there haven’t been any omissions and errors. I would suspect that this report has focused on the major general insurance players in the market rather than the major travel players, and they are not the same. A big drop such as 12.3 per cent would imply a disruptive entrant in the marketplace in 2015, and there were none. There were no new entrants desperate to buy market share by driving premiums down … there was none of that in 2015.”  Speaking of the travelling sector for which his company caters, Dr Shastri said: “Because patients with advanced cancer – a hugely neglected sector in the market – often don’t have the prospect of a long life, they won’t have the ability to wait out things like recessions, so our sector of the market is not necessarily sensitive to small variations arising from, for example, Brexit. There are more and more people living with cancer, the happy result of earlier diagnosis and better treatment, so we would not expect to see a decline in numbers.”

for pure travel insurance underwriters, it’s hard to make money in the retail markets

Often, the people doing analysis of this kind, Shastri agrees, start with the ABI membership list – and end with it. “But I believe that in the UK market, managing general agents and non-ABI members are likely to hold approximately 25 per cent of the market,” he explains, “so if you research only ABI membership, your figures are going to be constrained because you’ve only looked at 75 per cent of the market. I know of three underwriters – one of whom underwrites one of the biggest books in the market – who weren’t included in the Wise Guy research. Their combined market share, just these three companies, adds up to more than £120 million – that alone is 20 per cent of the total UK market size, according to Wise Guys. And that excludes all the Scandinavians and the MGAs. That’s why I consider this research to be flawed, because it has left out these insurers, including very possibly Lloyd’s players.  “This is a classic case of researchers approaching travel as if it was any other market and focusing just on ABI members, overlooking completely the fact that the market is highly fragmented, to such an extent that there are many MGAs. There are at least two German insurers who are not ABI members but who are writing £135 million of business. By simply working off the list of ABI members, they have omitted between a quarter and a third of the market. It’s not surprising, therefore, that as these non-ABI companies take a greater share of the market – they’ve grown very rapidly in the past five years – it appears to researchers that total business volumes are reducing. One of the companies I’m talking about probably had around £12 million to £15 million in GWP premiums five years ago; it’s now writing £85 million. They have mastered social media and marketing better than mainstream insurers. They have devised products more keenly attuned to customer needs, particularly in the area of pre-existing medical conditions and the over-50 age group. As chairman of the Travel Underwriters Group, the feedback I’m getting from our members is that they have not seen the decline referred to in the report. They, too, are skeptical!” Stuart Lloyd, commercial manager at Columbus Direct’s parent company Collinson Group, agrees that the Wise Guy statistics need to be looked at closely – very closely: “Measuring the decline in the British travel insurance market by just reviewing the GWP means you are only looking at half the story. The reduction in premium alone doesn’t necessarily indicate a reduction in people purchasing cover. Instead, it could just be a reflection of a shift in buying patterns or distribution channel. “Each year, it seems that the number of companies trying to sell travel insurance increases, which is helping to keep premiums low. The aggregators continue to gain market share; although they are doing more to encourage people to purchase quality products, they are still largely selling low priced cover. They are also attracting stronger brands to their panel, many of which have adjusted their products to suit the channel, and this can result in lower premiums.” Reviewing policy numbers in conjunction with the premium, he told ITIJ, would be the real indicator of the state of the market. “There continues to be a shift from single policy towards annual multi-trip policies,” he says, “as low cost airlines make frequent travel a possibility. It’s fair to say that there probably isn’t one single contributing factor, but lots of different reasons behind the drop in premium. However, there’s nothing to suggest that it’s because people are travelling less – data from the office of National Statistics reveals that travel by UK residents increased by 9.4 per cent between 2014 and 2015.” The downward trend highlighted in the Wise Guy report, however, is mirrored in the latest state-of-the-UK-industry paper published in October this year by the Dublin office of Research & Markets. Its UK Travel Insurance: Competitor Dynamics 2016 report reveals that seven of the UK’s top 10 travel insurers reported a GWP decrease in 2015. “The UK travel insurance sector,” it says, “reported a decline in performance in 2015 compared to the previous year and remains a fiercely competitive space, with insurers struggling to increase profitability. The competitor landscape sits in a reasonably top-heavy state, with the top five insurers alone accounting for two-thirds of gross written premiums. However, performance within this group and the market in general has been sluggish, with the market seeing consistent decline since 2013 as various players’ books have grown and contracted.”

EHIC stands for the European Health Insurance Card, but the key point is that it has nothing at all to do with insurance … it’s mis-named, which means it misleads

Price vs value

Fiona Macrae, head of client engagement at Travel Insurance Facilities Group (TIFG), highlights the problem of price verses value in the current UK market.   “At TIFG, although the number of travel policies sold remains strong, we are seeing a drop in the average price paid per policy,” she told ITIJ. “Research commissioned for our consumer awareness initiative Travel Insurance Explained shows that people purchase travel insurance on price without considering whether they are actually covered for the travel experience they are about to embark on. Our research showed that 39.4 per cent of people who purchase travel insurance online do little or no research before buying, and once they have purchased the policy, 45 per cent either don’t read their policy wording or read the policy only when they need to make a claim.” The aim of Travel Insurance Explained, she explains, is to get consumers to understand the cover they are buying: “Price is now the most common definer on whether the cover they are buying is suitable for their needs or not. Reading the T&C’s only when a claim is made is when the consumer finds the harsh realities of being underinsured or without cover entirely. The Travel Insurance Explained research has also shown that the consumer’s perception of what they expect travel insurance to cover is very high, even if they are purchasing the cheapest cover they can find.”

Market fluctuations

Kate Huet, managing director at International Travel & Healthcare Ltd and chair of the Association of Travel Insurance Intermediaries accepts that the market has shrunk ‘from the perspective of the number of firms writing travel insurance’. Some fairly significant players have lost their accident and health teams in the past 12 months. “If we continue with a very weak pound,” she told ITIJ, “premiums are going to have to go up because the current exchange rate is making the payment of claims, especially medical claims, overseas more expensive than they’ve ever been, so rate rises have got to be on the cards. I think we’re now seeing a double-whammy:  the impact of adverse exchange rates for sterling and escalating medical costs.” Travel, says Huet, is quite often used now as the ‘sprat to catch the mackerel by some insurers, who incentivise lower rates on travel cover so they can cross-market and bundle more lucrative policies such as home and motor to give greater basket value’. “So, for pure travel insurance underwriters, it’s hard to make money in the retail markets. Loss ratios are always difficult, more so with the rising cost of claims management. Because it’s so competitive, it is difficult to raise rates, but the reality is that claims are costing more to process, and I suspect the v alue of the claims is rising considerably, particularly on the medical side, and we have the exchange rate so much against us. Anybody who is trying to look after their book and trying to ensure that they’re reasonably profitable would invariably have to have rate increases at this time.” A combination of factors accounted for the reported slump in gross written premiums in 2015, according to Huet: “There’s no one main reason. If you are looking at value, what about volume? Has the volume of travellers and trips fallen, or is it just the value of the insurance? The two go very hand-in-hand. If we’ve got a very tight economy, the people on the borderline of whether they would or wouldn’t purchase insurance, perhaps would decide not to buy. We did some research with YouGov in July, and found that 48 per cent of students between 18 and 25 in full-time education don’t purchase travel insurance. Either those people’s parents are acting as the Bank of Mum and Dad and organising their insurance for them, or they’re simply not travelling properly insured. Perhaps, too, it’s the Peter Pan mentality; they think that nothing is going to happen to them.” There is also the fact that some destinations that were formerly very popular have become extremely unpopular. “We’ve seen massive decreases in traveller numbers in Turkey and North Africa,” says Huet, “and for obvious reasons. Those are traditionally cheaper destinations. If those people are not travelling because they can’t afford the likes of Spain, where prices have gone up by 6.5 per cent, they’re on a staycation, aren’t they? They’ll holiday in the UK. So that’s the UK economy as one factor and the safety climate as another. A lot of people who might previously have taken two or three foreign trips a year maybe did only one and stayed in the UK for other holidays.”

A niche to exploit?

So does this mean that insurers should be looking at scope for growth in the staycation market? Could that be a gap worth focusing on, or a market with limited business potential? “If you’re holidaying in the UK,” explains Huet, “the National Health Service (NHS) will take care of anything from the medical perspective, but you should really have insurance in case you need curtail or cancel your holiday – those are real risks – particularly if you’re doing more than a couple of nights. It would be a stripped down policy for UK citizens having a holiday in Britain, but if people have got annual cover, they’d be covered within the UK in any case. As for people who holiday only in Britain, I don’t know that people book that far ahead, so it hasn’t got the same dynamic.” This doesn’t mean there’s no market, she says, ‘but it’s small’. For example, ‘if 27 per cent of Brits go to Spain, and then you take in holiday destinations in the rest of the world, for their main holiday, you’re into low numbers for staycation cover’.

one of the positive outcomes of Brexit [could] be an underlining of the importance of travel insurance

And what of the EHIC?

One of the many issues on the table when the UK government begins divorce negotiations with the European Union (EU) will be the European Health Insurance Card (EHIC) system, which gives reciprocal access to state-provided healthcare during a temporary stay in the 28 EU member states plus Switzerland, Iceland, Liechtenstein and Norway. Would UK insurers have a growth opportunity if Brexit left British travellers outside the EHIC arrangement?  Danielle Cripps, insurance analyst at Verdict Financial, offers a yes-and-no answer. “If travel insurance were to be seen as a more vital product,” she told ITIJ, “insurers might write a greater number of policies covering travel in Europe, so that would help to grow the market as far as gross written premiums are concerned, but if Britain no longer benefited from the EHIC system, claims costs would rise as medical costs currently covered through EHIC by governments would be passed on to insurers, so overall the impact on travel insurers could be detrimental if the rising cost of claims outweighed the benefit from underwriting a greater number of policies. Claims costs are already increasing due to medical cost inflation, and if they’re going to increase further, that will put more pressure on insurers to increase premiums.” Cripps agrees, though, that the role of the EHIC does need to be looked at regarding its relationship with travel insurance. “There needs to be greater understanding of what the card actually does and what its limitations are when compared with travel insurance,” she says. “The online information about the card that I’ve looked at – from the Foreign & Commonwealth Office (FCO) and other organisations – does state that the card isn’t a substitute for travel insurance, but not all the websites explain why it isn’t, and I think that’s the main issue. If the public had a greater understanding of the limitations – and more could be done to highlight them – people, especially younger people, might not be so reliant on the EHIC and would turn more towards travel cover. “The material about the EHIC covers its benefits, but while all that’s really good, it doesn’t highlight aspects such as private medical care or the costs of mountain rescue in ski resorts or repatriation to the UK. The EHIC entitles travellers to only the basic state health services provided in the host country. These vary across the European Economic Area, and can entail charges for hospital patients. There are also risks outside the healthcare issue, such as cancellation, loss and theft that aren’t covered by the EHIC that perhaps need to be highlighted. By focusing on the EHIC’s benefits and its necessity so much, perhaps the perceived value of travel insurance falls. People need to have a better understanding of why they need to have both, not just the card.” It’s ‘absolutely possible’, according to Kate Huet, that young travellers’ unwise level of trust in the EHIC might be one of the factors contributing to a decline in gross written premiums. “We know it isn’t a get-out-jail-free card, but young people perhaps don’t see it like that. They might see it as providing some degree of protection, which of course it does, but the standards and types of healthcare provided across the Europe Union vary enormously. The EHIC’s limitations are not generally known and understood. “At the Association of Travel Insurance Intermediaries, a lot of work has been done this year with the FCO, which is changing the Know Before You Go campaign to something called Travel Aware. We explained to them that the EHIC is poorly named and not well understood. I think the FCO has taken that on board. We’ve yet to see the evidence, but I think they’ve got that message.” Stuart Lloyd at Collinson thinks that the currently weak pound might discourage British holidaymakers from travelling overseas. “This, together with the impact on medical costs, will have an effect on the travel insurance market. In the long term, however, if British travellers were to lose their right to the EHIC after the official departure of the UK from the EU, travel insurers might benefit from an uptake in travel insurance policies as travellers can no longer rely on the EHIC for emergency medical costs in state-run hospitals.” InsureCancer’s Dr Shastri is in no doubt that one of the positive outcomes of Brexit would be an underlining of the importance of travel insurance. “People assume that the EHIC is a good substitute for travel insurance,” he says, “but all of the discussions about Brexit simply underline the fact that patients should be properly insured when they leave the UK, even if the EHIC continues. Our patients know they can’t rely on it. “EHIC stands for the European Health Insurance Card, but the key point is that it has nothing at all to do with insurance, so why does it have insurance in its name? It’s mis-named, which means it misleads. It drives people to assume that they are covered because they’ve got the card. The reason why that name was adopted in the UK was because it was an edict from Brussels! If we leave the EU but continue with the reciprocal arrangements, we would be able to change the name of the card, because we’d no longer have to submit to directives from Brussels.  “If I was a man in the street and you gave me an EHIC, I would say, ‘yeah, I’m insured!’ In the UK, if you put something out with insurance in its name and it had nothing to do with insurance, you would be sued. It’s misleading; deliberately misleading. If a young person actually takes the trouble to get the card, and it says insurance on it, why should they think any further about it. If I was 20, I wouldn’t. Why would I?”

What should the industry be doing?

“First of all,” says Stuart Lloyd, “more education is needed to inform people why travel insurance is a necessity. According to the Association of British Travel Agents, almost a quarter of holidaymakers travelled without insurance last year. Millennials are the most likely group to travel uninsured. Almost half of millennials believe that travel insurance is not necessary – a false assumption. Bearing in mind that the average cost of medical treatment is £1,200, the average cost of an annual travel policy of £33 is definitely something worth paying for in case of any eventualities. “Very often when people read about travel insurance in the media, it’s a negative story of how the cover has failed to protect the customer. In reality, though, travel insurance has been a lifesaver for many people, and the industry should do more to communicate such stories so consumers can understand and learn to appreciate the value of travel insurance.”    Looking at the potential for last-minute sales, this summer Columbus Direct rolled out the first-ever self-service digital kiosks at nine UK airports, allowing travellers to buy travel cover at the same prices as online quotes in just three minutes. “The introduction of digital kiosks,” says Lloyd, “also speaks to changing consumer purchasing behaviour, as more travellers are buying travel insurance policies online or via mobile. As customers are becoming more discerning, the industry needs to focus on multi-channel engagement, timeliness of service and unique and differentiated digital experience of purchasing insurance, as well as a quick and stress-free claims handling process.” The industry, thinks Lloyd, ‘needs to constantly evolve to develop new policies to fulfil customers’ expectations as well as to create a more inclusive market’. “This is already happening with the emergence of specialist insurance policies for older people,” he says, “or travellers with pre-existing conditions (partly driven by increasingly sophisticated medical screening services) in recent years. And with terrorism an alarming global issue nowadays, an increasing number of travel insurers are introducing cover for terrorism because of rising demand from customers. That said, the insurance industry is not necessarily known for its agility, so there is more to do in terms of reacting to changes and customers’ needs. ⬛