ITIC UK: What constitutes value in travel insurance?
Panelists consider what value means in the industry, and does it correlate with a ‘good outcome’ for the consumer?
Tom Bishop, Head of Travel Insurance, Direct Line Group
How do you define value and how does an individual’s perception of value alter its interpretation? Tom began by sharing his view: “There is a balance between the benefit to the customer and the price paid and that is what will lead to genuine value, and in relevance to travel insurance I think the product is only of value if it operates as required at the time you need it.”
There is no doubt travel insurance has been on a journey of late, and the increase in customers choosing price comparison websites as their first port of call whenever they purchase insurance has led to a lack of clarity where cover has been very limited and a lack of education for customers on what is actually a very complex subject.
With the pandemic taking its toll on the market, Tom identified a ‘great opportunity to rebuild and reset as an industry’, with customers looking at insurance differently post-pandemic, not focusing solely on cost. Covid has presented an opportunity where consumers are looking for cancellation cover and to be educated in their purchase, seeking clarity in product information.
“The onus is on insurers to react to evolving needs,” said Tom. As the pandemic has progressed, it has seen a shift in insurers stimulating the travel market by reintroducing varying levels of cancellation cover, seeing cancellations replacing medical peril as the cost majority.
With FCA consumer duty measures due to launch this summer and ‘acting to deliver good outcomes for retail customers’, that involves ‘improving customer understanding, demonstrating outcomes being achieved’ and ‘firms being able to challenge themselves-testing, learning, and adapting your product’. In essence, this should enhance the quality of what the consumer is getting. “Standing still isn’t good enough,” said Tom, urging colleagues to adapt to the current needs of the market.
Bishop concluded his session by reminding attendees that the post-covid landscape lends itself to ‘better quality cover, firms actively educating customers to the protections that they offered’. There remains a place for products with limitations as long as they are not misleading, ‘cheap and cheerful is fine, but cheap and nasty is not great for industry reputation, and consumer duty lends itself to better conduct and improved, genuine value for customers’.
Sarah Brodie, Senior Policy Advisor, Association of British Insurers
Sarah started by introducing the Association of British Insurers (ABI), before touching on the common theme of the day and recounting how they responded when the pandemic hit. In order to support the industry, they published a number of commitments to ensure clear information around coverage of policies and consider all valid travel insurance claims. These commitments are still in place today and saw the industry respond proactively at the time around specific issues such as repatriation, seeing ABI members extend cover for those stuck abroad from 30 days to 60 days, providing customers were making every effort to return home.
Data released by the ABI in February 2021 showed that travel insurance was set to pay out at least £152 million as a result of coronavirus, with most claims being cancellations. For perspective, the volcanic ash cloud incident saw this figure at £62 million in cancellation claims, making Covid-19 a much more significant event for the travel insurers.
Sarah stated: “The point consumers are missing with travel insurance is that it is primarily an emergency medical product. It is there for when the worst happens. We were really clear that cancellation cover would only come in where costs could not be recovered from elsewhere. It is not priced to fill the gaps where other consumer protections apply.” Tour operators confused consumers, as some directed customers to claim on travel insurance to reroute away from their legal obligation.
Confusion was also increased by the seemingly contradictory advice regarding borders and Foreign and Commonwealth Development (FCDO) advice. “If a country had closed borders meaning the consumer couldn’t actually enter that country, but FCDO didn’t advise against it, then travel insurance cancellation didn’t kick in. That was really difficult.”
One of the key issues currently being seen by the ABI is customers seeking clarity on what they are covered for by their policy. This presents itself in many ways, from flight delays and cancellations where the consumer thinks they can pursue the claim through their travel insurance, to difficulty receiving refunds, not to mention the current delay with passports.
Consumer duty is something the ABI has been closely involved in. “We have been in discussions with the FCA and have been regularly responding and ensuring our members and committed to acting honestly, fairly and proficiently in accordance with our customers needs. We support the bar being raised across financial services. We are continuing to work to obtain further clarity on the proposals at a time where geo pricing and other regulatory measures are being put in place. We want to be really clear what kind of value this is offering to our customers, above what exists at the moment.”
Paul Beven, Global Managing Director, Verisk Life, Health, and Travel
Communication with the public has been a reoccurring theme, and Paul began by stating ‘people don’t respond to travel insurance because it is cheap’; this fact seemingly leading people to not place much value upon it, when the opposite is true. “You are getting unlimited medical expenses and repatriation expenses for very little money. As an industry, I think life insurance and health insurance represent a more serious product than we do, but actually the benefits in relation to the premiums in travel insurance are better than anything I can think of.”
When considering the FCA consumer duty consultation, Paul highlighted the phrase ‘good outcome’, considering: “It’s pretty difficult for an industry to be given a statement that you have to produce a good outcome with so far as I understand it, so little guidance to what that actually means.”
When an individual buys a policy, is making a claim the barometer of whether it is deemed good value? Or is it your current state of health and the premium you have paid to afford you that cover and permission to travel a barometer of value? Paul explored this concept comparing the higher price of premiums for those with additional factors such as being older or with pre-existing conditions, to that of the National Health Service, where in the UK we don’t pay a premium if we are old or sick to access the healthcare we receive. Do consumers feel penalised? Apparently so, with Paul confirming it was something they had heard a lot about in the discussions leading to the FCA signposting initiative. “There was a definite perception that people were being discriminated against,” he added. But the pooling of similar risks means that ‘insurers are able to distinguish very clearly between what level of risk people have and don’t have and the result of that is that the capability now exists to produce winners and losers in the game of buying insurance policies’.
He then went on to consider the concept of discrimination looking at what is fair and not fair, visiting the Disability Discrimination Act 1995, where the definition of disability was defined clearly, onto the Equality act 2010, the Gender directive 2012, which banned discrimination on gender although, he said, ‘there is a very good statical actuarial case that women are much better risk for varying categories of insurance than life and motor than men are’. Considering the concept that customers are treated fairly, Paul referred back to the Disability Discrimination Act, which defined a disability as “the vulnerable customer as someone who due to their personal circumstances is especially susceptible to harm.” The FCA did a study in 2020 where 53 per cent of the UK adult population had characteristics of vulnerability and considering this alongside consumer duty, Paul considered where this leaves the industry, and concluded that it was ‘personalised pricing’, questioning whether the public would really understand what this means, and the implications of it.
Paul concluded his talk with an existential question, asking us if young healthy people should subsidise old, unhealthy people for their travel insurance premiums to partake in a discretionary activity such as travel? Fairness, he said, cuts both ways.