First published in ITIJ 129, October 2011
Emily Knight of Consumer Intelligence offers insights into consumer behaviour in the UK’s travel insurance market
2011 saw a great deal of change in the UK travel insurance market, with consumers now having more choice than ever when it comes to purchasing a travel insurance policy. New brands such as Gnu Insurance have appeared. New products have been launched into the market, such as the Travel Disruption Cover now offered by Halifax and the new Travel Dispute Cover from insurewithease.com. There is now so much choice in the market, in fact, that the Association of British Insurers launched a Travel Insurance Consumer Guide in April this year in an attempt to clarify the market so that consumers can find the policy that best suits their needs.
A perfect storm
The Icelandic ash cloud, political unrest, severe weather conditions and industrial action have all contributed to a recent increase in travel insurance claims, which in turn has led to an increase in the average cost of a travel insurance policy. Research from Consumer Intelligence has shown that online quoted premiums have increased by around 18 per cent since June 2009, with the most significant monthly increases seen in April 2010 at the time of the ash cloud, and again between December 2010 and January 2011 – when heavy snow hit UK airport operations hard. These price hikes mean that consumers who are shopping for travel insurance online can now expect to be quoted an average of £78 for an annual policy, up from £67 in 2009.
It’s not just prices that are making the headlines, however; the distribution of insurance products has also been subject to a vast amount of press coverage over the last few years. It is the aggregator channel that has made the news the most often: new price comparison sites have launched and others have failed, marketing spend for aggregator brands has gone through the roof and the Financial Services Authority has recently drafted a set of proposed guidelines on the selling of general insurance policies through comparison sites. Further questions have been raised over the purchase of Beat That Quote by Google earlier this year, leading to a great deal of industry speculation about the brand’s potential future presence in this space.
The combination of the increases in premiums and the continued marketing push from the aggregator brands may explain the high proportion of travel insurance quotes that are now obtained via price comparison sites. A survey conducted by Consumer Intelligence in the first quarter of 2011 reveals that over half (52 per cent) of all personal travel insurance quotes are now obtained via price comparison sites, meaning that aggregators now have more popularity as a quote channel in this market than for the private motor (45 per cent), home (40 per cent) and pet (35 per cent) insurance markets.
The high volume of traffic that comparison sites are seeing for quote activity, however, does not appear to convert to purchase. Over half of all travel insurance quotes are obtained via the price comparison site channel, but only a quarter of policyholders say that they actually click through from a comparison site to purchase their policy. The large difference between quote and purchase levels is nothing new – at Consumer Intelligence, we see a similar picture in other general insurance markets. However, while the proportion of policies purchased via this channel is growing in markets such as pet and motor insurance, the travel insurance market is showing a decline. While survey data from the first quarter of 2011 shows that 25 per cent – still a relatively high proportion – of travel insurance policies are bought by clicking through from a price comparison site, this has dropped over the course of the year, with the figure having stood at a third of all policies in the first quarter of last year.
online quoted premiums have increased by around 18 per cent since June 2009
This decline, however, does not appear to be as a result of any negative feelings towards comparison sites – it isn’t fuelled by a lack of consumer trust, or any issues around clarity or service. Instead, it appears that a surge of interest in one particular policy type can explain the decline in price comparison sites’ share of the travel insurance market.
It is the rise in popularity of bancassurance that appears to be taking market share away from the price comparison site channel. Travel insurance policies arranged in a bank or building society branch accounted for only eight per cent of all policy sales at the start of 2010, but have grown to represent 18 per cent of the market in early 2011. Many of these policyholders who are purchasing their policy in-branch, however, are not taking out standalone travel insurance policies: Consumer Intelligence has seen a rise in the popularity of bundled financial services products. We see that 29 per cent of travel insurance policyholders are now opting for cover that is free with another product (such as a bank account), to the detriment of sales of single trip policies, which now account for only 18 per cent of the personal travel insurance market.
There remain doubts, however, about the future of the packaged current account market. It was announced in late February 2011 that the Financial Services Authority (FSA) plans to launch a probe into such accounts this autumn, over concerns as to whether they offer value for money to consumers. Many bank brands have been focussing their sales efforts on fee-paying packaged accounts to increase their current account income, but the FSA has voiced concerns that purchasing the bundled products individually can be better value for money, and that the levels of travel insurance cover included within these accounts may not be completely suitable for customer needs.
If such an investigation is conducted and the FSA does choose to rule against the banks, then this could pave the way for an influx of new customers to insurance comparison sites. Those who currently use price comparison sites to shop for their travel insurance tend to consist of particular demographic groups: consumers aged 18 to 34, the full-time employed, high-income consumers and those in single person households all over-index. Interestingly, recent studies by a variety of organisations show that consumers with these characteristics tend to be those who are most likely to travel abroad without cover.
Loyalty comes cheap
It is possible, however, that the demographic make-up of comparison site users could change dramatically if the packaged account market were to fall through, with a wider range of demographic groups using such sites to buy their travel insurance policies. At first glance, this would be great news for those travel insurers without a branch presence, increasing the size of the market to which they are exposed. However, as we also see in other general insurance markets, those who choose to purchase their policy through a price comparison site may be best viewed as short-term prospects. Analysis of both purchase behaviour and attitudes towards travel insurance suggests that loyalty and profitability may not go hand in hand with this particular distribution channel.
Looking at the correlation between customer loyalty (or inertia) and travel insurance purchase channels, it appears that contact with an advisor at the point of sale increases the likelihood that a customer will be retained for a longer policy term. Data from Consumer Intelligence shows that 42 per cent of those purchasing via bank branch, and 28 per cent of those buying their policy over the phone, state that they have been with the same insurer for four years or more. Conversely, the Internet is synonymous with less ‘sticky’ customers, with only 12 per cent of those purchasing directly through an insurer’s website saying that they have been with the same brand for this period of time. This analysis serves to highlight the fickle nature of many price comparison site purchasers, with 64 per cent saying that they have been with their insurer for less than a year, compared with a 40 per cent market average.
Further concerns about profitability may also emerge when analysing the types of products that these consumers buy, and the ways in which they pay for them. Rather than opting for annual cover, those buying through comparison sites are more likely to purchase cheaper, shorter-term single trip policies. Policy bolt-ons also seem to have less appeal for this group, with a lower proportion than the market average saying that they purchased extra cover for things like winter sports, golf or hazardous activities. Even the way in which policies are paid for offers lower levels of profitability for insurers, with those purchasing via a comparison site having more of a tendency to choose the more cost-effective option of paying for their cover in a lump sum rather than paying in instalments. This could, however, be partially due to the higher levels of single trip policy purchase via this channel.
only a quarter of policyholders say that they actually click through from a comparison site to purchase their policy
As would also be expected, policy cost is certainly key for this group. Three quarters of those choosing to click through from an aggregator to purchase their policy cited cost as a reason for choosing their insurer – this compared with a 50 per cent market average. Cover levels, however, are also more important to this group than to other policyholders in terms of reasons for brand choice – a little surprising, perhaps, but could simply be due to the nature of such sites allowing those shopping for travel insurance to compare cover levels from different providers far more easily than if they were to obtain individual quotes.
Branding-related attributes and word of mouth are fairly irrelevant to those buying through price comparison sites, who are far less likely than the market average to choose an insurer based on recommendations from friends or family, trust in the company or prior knowledge of the brand. And for travel insurance providers who use satisfaction and recommendation as key performance indicators ... take note that those buying their policy through a price comparison site may well lower your average scores. Comparison site purchasers are 10-per-cent less likely than average to believe that their travel insurer provides an excellent policy overall, and Net Promoter Scores stand at -22 per cent for this group, compared with one per cent for the travel insurance market as a whole.
With so much of a focus on the market over the last few years thanks to natural disasters, political unrest and industrial action, it will be interesting to see whether consumer purchase behaviour changes accordingly. A potential increase in price comparison site usage could be dependent on levels of consumer trust in the market – after so much negative press about the travel insurance industry and fears over whether their insurer may pay out if things were to go wrong, will we see a retreat to more traditional channels and insurers? Only time will tell.