I dare say that most of us in the travel insurance industry not only recognise the true worth of travel insurance, but also despair over the fact that not all consumers seem to share this appreciation. Despite its importance, travellers bemoan ‘forking out’ for travel insurance, convincing themselves that they don’t need it for their summer holiday to Spain, and instead spending the money on sangria. Or, if they are feeling slightly more diligent, they might just opt for the cheapest travel insurance option available as a token gesture.
This is particularly easy to do when consumers have access to aggregator websites, which are notorious for helping customers to find the cheapest option available. And there are other factors that keep travel insurance policy prices low, such as on-demand travel insurance whereby consumers can purchase small portions of insurance with a swipe of a smartphone and, of course, competition in the industry, with market forces dictating low premium prices.
Insurers are craving a shift in consumer mindset, whereby consumers acknowledge that it is not the price, but rather the product, that is important. Rather than settling for the cheapest option, consumers should be preoccupied with what a policy can do for them should the worst happen: and we all know that the worst does indeed happen. Given the importance and complexity of travel insurance products, together with traditionally low profit margins in the travel insurance sector, surely an across-the-board rise in the price of premiums would not be unreasonable.
The combination of a highly commoditised market and the influence of price comparison sites has made travel insurance especially price sensitive
The issue is how an increase in the price of travel insurance policies could be implemented. If a travel insurer decided to hike its prices a consumer could easily go elsewhere – somewhere cheaper. On the other hand, with the advent of insurtech and enhanced options for personalisation, are arguments for raising the price of travel insurance redundant?
The price isn’t right
Simon Neicho, Head of Commercial at World First Travel Insurance in the UK, believes, for a number of reasons, that travel insurance should cost more. “The combination of a highly commoditised market and the influence of price comparison sites has made travel insurance especially price sensitive,” he told ITIJ. “Inflated medical bills, rogue clinics, rising costs of personal possessions and currency fluctuations are but a few reasons the cost of travel insurance should be higher.”
A rise in the cost of premiums would certainly give travel insurers more breathing space and allow for better product investment and development. Carl Carter, Managing Director at UK-based Voyager Insurance, expressed his frustration that travel insurance as a complex product is undervalued: “It is a shame that the consumer has focused more on the cost rather than the comparison and quality of coverage presented by the vast array of brands and products available,” he said. “I think if travel insurance was to cost a little more and if that was passed to the underwriters, then what is at best a marginally profitable product for many underwriters could be a profitable product that would allow further investment in coverage and the supporting services.”
One challenge, however, is keeping premiums affordable. As Nel Mooy, Travel Director, AXA Insurance – Retail, told ITIJ: “Travel insurance is indeed complex, but it should stay affordable. Premiums vary a lot and are influenced by many factors, including the traveller’s health, their destination and the activities in which they plan on taking part.”
The price of personalisation
Pricing has certainly evolved in line with a new era of personalisation. Chris Carnicelli, CEO of US-based Generali Global Assistance, explained that as the amount of affordable travel options has exploded in the recent past (budget airlines and rental cars, vacation home rentals, discount hotels, and so forth), so has the number of travellers and the reasons for their trips. “As a result, travel insurance product design is becoming more responsive to individual traveller needs.,” he said. “As such, pricing has evolved from simple per-trip structure, using trip cost and age, to more sophisticated models targeting the risk of the person travelling and their itinerary.”
With the advent of insurtech and enhanced options for personalisation, are arguments for raising the price of travel insurance redundant?
It is true that there is growing demand for personalised products that fit the individual needs of a consumer. If a product is specifically customised then it could certainly cost more than a standard, one-size-fits all policy. “As products become more responsive and price more accurate, many trips and travellers may benefit from the increased complexity via ‘best fit’ product and pricing, rather than always being offered a comprehensive and subsidised product,” highlighted Carnicelli. “However, as the impact will likely have a positive effect on price for certain travellers, those benefiting from the subsidy today may likely have to pay a higher premium.”
Mooy agrees and underlined the need for travellers to choose policies that match their requirements. She says cheap policies are not an issue, so long as the consumer has opted for cover that protects them for everything they need or expect it to: “There are lots of policies for different types of people – with or without pre-existing medical conditions – going on different types of holidays, whether it is a hotel stay in Spain or a trek across the Andes. There is nothing wrong with a cheap policy. What matters is that the holidaymaker chooses a policy that matches their needs.”
If travel insurers were to increase the prices of their products, how would this be executed? According to Neicho, this is something that may occur organically, so long as insurers are receptive. “Insurers being proactive to change and charging the correct rate for risk will have the natural result of increasing premiums across the industry,” he said.
Carnicelli, though, believes the process may be much more complicated and far more gradual. “In the US, both benefits and rates are approved by each state and therefore subject to what has been filed by each insurer and subsequently approved by each state’s department of insurance,” he told ITIJ. “The approval process for changing products and rates is often lengthy and dependent on what an insurance company can justify. Because travel insurance is not like many traditional lines of insurance, where risk and accident data is readily available, each insurer must rely on their own experience to justify rates. As a result, what one insurer develops for products and rates may be very different from another. Therefore, it is not realistic to see a market shift all at once, but rather as a reflection of how each insurer prepares their filings.”
Carter is also skeptical about whether a rise in prices could be achieved. “Due to hyper competition in the marketplace, alongside rising costs, medical inflation and increased consumer expectation, I think it unlikely travel insurers across the board would or could increase their premiums without fear of being the first to break rank and see a material drop in their revenue,” he said. “Although, where there are multiple brands insured by one carrier in restricted distribution channels such as comparison sites, then this could be more feasible for the brave! Such a seismic shift would allow improved customer outcomes and quality of cover offered at the budget end of the marketplace.”
Education equals everything
Of course, it’s not just insurers to consider. Would consumer education be required as a prerequisite for an increase in policy prices? Neicho believes this would certainly be the case. “Consumer education relating to the benefits of travel insurance, the costs of medical treatment abroad and the financial implications of not being insured would need to precede any significant increase in premiums to maintain the current level of conversions,” he opined. He highlighted the weight of consumer perception, pointing out that it may be the case that until the consumer’s perception of value in relation to travel insurance changes, average premiums are unlikely to rise substantially.
Carnicelli is also an advocate for education on changes in the industry. “When changes to travel insurance premiums – or, changes in coverages – are warranted, we provide a high-level overview and training to travel suppliers who offer our products,” he informed ITIJ. “Considering most travel insurance programmes (at least in the US) are priced per trip, unlike home and auto programmes which are set to renew each year, there typically isn’t a one-size-fits-all explanation for the variations in travel insurance premiums. However, we highly encourage travel insurance call centre staff to be prepared in answering complex coverage and premium inquiries posed by customers.”
Voyager Insurance’s Carter also believes that education is key, not only in the instance of a price increase, but in order to inform consumers of the options available to them, which is something that the travel insurance industry is working to improve. “There is much work being undertaken in the travel insurance industry at both underwriter and distribution channel end to help educate the customer that it is not just price that should be considered when buying travel insurance,” he told ITIJ. “There is important work being undertaken to educate the consumer as to the differences between products, what to look for and how travel insurance works in practise. Fundamentally the age old saying of ‘you get what you pay for’ really does apply to travel insurance as much as many other consumer products.”
Travel insurance is indeed complex, but it should stay affordable
Travel insurers have a responsibility to educate consumers about the products available and this is a responsibility that Mooy takes seriously. “Travel insurance is good value and insurers need to demonstrate that value to customers,” she said. “As an industry, we need to explain clearly what is usually covered – like flight delays, medical emergencies, personal accidents or lost luggage – and what often requires an upgrade – cruises, skiing and golf, for instance.”
Mooy also pointed out that insurers should remind people that there are conditions: “They need to declare their medical conditions when they purchase insurance and, once they’re on holiday, they mustn’t take inconsiderate risks. Policies tend to exclude injuries sustained when jumping off a balcony into a hotel pool or during a drunk session of skinny dipping. That is the sort of customer education we should do, making sure people understand the extent of their cover and its limits.” Indeed, AXA is developing a tool to assist with this. “People will be able to use the tool to assess their ‘travel health’. That should help them pick the right cover for their needs,” she revealed. “It may also improve the general public’s understanding of how travel insurance works, which would help demonstrate its value.”
High-tech, high price?
It’s no secret that we are living in a digital age, and with technology comes convenience. But what of price? “Theoretically, policy acquisition and fulfilment in the digital age should be cheaper, yet pricing varies due to the different variables used to determine a traveller’s individual premium,” Carnicelli told ITIJ. “There are two opposing drivers related to the rising cost of premiums in the digital age of insurance. On the one side, digitalisation can reduce cost with the use of artificial intelligence, machine learning, and a full digital journey for customers.”
As far as Carnicelli sees it, regardless of price, travel insurance is getting better. “It’s difficult to predict the overall impact but the insurance industry is consistently working towards simplifying products, creating more clarity around policy language, and more transparency in their processes. Regardless of the direction technology takes when it comes to pricing, the impact should be a better experience for those buying and using travel insurance.”
Onwards and upwards (except price)
The importance of consumer education cannot be overestimated. And this doesn’t apply just to potential price increases; the consensus is that insurers need to exercise due diligence in ensuring that consumers are aware of their options and that they come away with a purchase that matches their unique needs. Beyond this, and perhaps even more importantly, consumers need to be educated on the importance of travel insurance in order that their perspective shifts from actively seeking out the cheapest product they can find to seeing travel insurance as an essential and worthy product. Although, for many, price will always be the most important consideration, there is no denying that you cannot put a price on health and it shouldn’t take a bad experience abroad to awaken travellers to this reality. But, as we know, cheap doesn’t always equate to ineffective, and travellers on a budget can find a policy that works for them.
For insurers, although competition in most marketplaces, and regulation in some, are certainly barriers to allowing the industry to move forward as one when it comes to increasing the price of premiums, the impact of personalisation could be a way to price premiums at a higher rate that better reflects the complexity of the product and give insurers a fairer profit margin on a product that has traditionally been widely viewed by the industry as underpriced. ■