Sam Barrett asks what does the future hold for travel insurance as the world starts moving again?
With much of the world in lockdown and the UK government banning all but essential journeys, the travel insurance sector has faced a significant challenge in recent months. But, although cover is still evolving, the approach it took throughout the pandemic could result in a solid future for the sector.
The unprecedented nature of the pandemic meant many travel insurers were also forced into a form of lockdown. "More than 50% of insurers withdrew from the market in the middle of March, with many of them imposing a retrospective pandemic exclusion," explains Anthony Kaye, managing director of Campbell Irvine and chair of the Association of Travel Insurance Intermediaries.
While purchasing cover became tricky, with Moneysupermarket reporting that just six insurers out of about 40 being left on its portal at the beginning of UK lockdown, there was plenty of activity behind the scenes. "Insurers were bombarded with claims and doing what was necessary to get people back from abroad," says Helen Chambers, head of travel insurance at Moneysupermarket. "This was all happening at exactly the same time they had to shift staff to working from home."
TIME TO TALK
Amid all the chaos, communication proved particularly valuable. As well as working hard to ensure that policyholders understood their rights when it came to refunds for cancelled holidays, pointing them towards their holiday and credit card companies initially, insurers also rebated premiums to anyone unable to travel.
For example, at AllClear, customers were offered a cash refund or a voucher with a 20% uplift if they wanted to repurchase cover.
Insurers also looked at the experiences of other parts of their businesses, as Nel Mooy, head of proposition, travel at Axa Insurance explains: "We have colleagues in China who had already gone through lockdown. This meant we could see how they had dealt with it, enabling us to implement online claims forms for all our customers and focus on getting communications out to reduce the volume of calls coming into our staff."
After the initial shock, insurers started to gain the confidence to adjust their wordings in line with customer requirements. And, while there were only a handful to start with, Mr Kaye says that, by July, more and more Covid-19-friendly travel insurance policies were available. "The policyholder must not be travelling contrary to Foreign & Commonwealth Office (FCO) advice, but first we saw insurers adding in cover for medical emergency and repatriation in the event of contracting the virus.
More recently, insurers are adding pre-departure cancellation, where someone is diagnosed with Covid-19 or they are contacted by NHS Test and Trace due to direct exposure, and some are offering curtailment cover. Where there is a choice of two policies -- one with Covid-19 cover and one without -- it's only the former that is selling."
People want to know exactly what's covered. There's been a shift from price to quality
Insurers' caution around offering cancellation cover is understandable. As The Journal went to press, Spain had been removed from the list of countries exempt from quarantine following a significant change in both the level and pace of coronavirus cases. Fears were mounting of a second peak in infections and insurers being hit by a second wave of claims. However, Paul Simmonds, managing director of Tangiers Insurance Services, believes that consumer behaviour might help to prevent this. "People are nervous about travelling abroad," he says. "If they go on holiday this year, they'll book a week or so in advance, buying their insurance at that point too. This will potentially limit cancellation claims."
Although mainstream insurers are tentatively dipping a toe into Covid-19-related cover, a market does still exist for those wanting more comprehensive cover. As an example, Battleface, which was developed by Tangiers Insurance Services, provides cover for people who want to travel anywhere, including countries the FCO advises against. "We have always covered these countries," says Mr Simmonds. "In mid-July we also extended the cover, adding in up to £5m of cover for medical expenses caused by or resulting from Covid-19."
Insurers are also responding to changes in travel habits. With more people opting for a staycation this year, Staysure has added a UK region to its annual policy. "Demand for a UK policy is low but Covid-19 has brought attention to the risks," says Darren Saunders, chief commercial officer at Staysure. "If someone contracts Covid-19 and cannot travel, this gives them the reassurance that they are covered."
As well as adapting cover to suit needs, Ben Carey-Evans, insurance analyst at GlobalData, believes that policy wordings will become clearer so that consumers can see instantly whether pandemics are included or not. "I expect to see more tiered policies once this pandemic is over, with full coverage offered in a gold-type policy, for example," he explains.
Taking this approach will also help to address some of the trust issues that can often dog the insurance sector. "Insurers have always struggled with consumer trust and the fact that cover was removed across several lines of insurance as soon as the pandemic was declared will represent a new low," Mr Carey-Evans adds. "To get consumers back onside, they will need to ensure they are very upfront about what cover they provide."
Covid-19 also brings some opportunities for insurers to benefit from changes in consumer habits. Before the pandemic, travel insurance was often regarded as a last-minute purchase based predominately around price. Many didn't bother at all, with research by Moneysupermarket in March 2019 finding that 28% of 2,000 people surveyed didn't have any cover on their most recent trip.
There is plenty of evidence that this has changed. A spokesperson from consumer awareness initiative Travel Insurance Explained says they have seen an increase in the number of people contacting travel insurance providers to enquire about the cover available to them. This is echoed by Chris Rolland, chief executive officer at AllClear. "We have seen a lot more calls and they have been on average 20% longer," he explains. "People want to know exactly what's covered. There's been a shift from price to quality."
This shift is shown in another Moneysupermarket survey, which examined what customers looked for when taking out cover. For the first time ever, the right cover came top, ahead of price. Ms Mooy is pleased to see this change in consumer behaviour. "It is too early to tell whether this is the new normal for consumers but it's encouraging.
Travel insurance is a really important purchase: it can change your life if something happens and you don't have the right cover."
Although the cost of travel insurance may be less important as consumers focus on taking out the right cover, several factors could push prices upwards. As well as a flood of Covid-19-related claims and lower sales volumes, insurers are also contemplating how any Brexit deal may affect exposure. Without a reciprocal agreement in place with the European Union, insurers could find themselves picking up claims for medical expenses that would previously have been covered by the European Health Insurance Card.
While it is too early to predict the effect on rates, Mr Simmonds believes that market forces will keep premiums down. "Competition won't allow premiums to increase," he says. "The FCA also takes a dim view of premium increases, especially where consumers aren't getting any more for their money."
The travel insurance sector is also very conscious of its responsibility when it comes to giving consumers the confidence to travel again. Mr Saunders says that, although Staysure has added Covid-19 cover to its policies, it has done this without having to increase premiums. "Insurers need to strike a balance between cover and price," he adds. "We want people to be able to afford cover -- it would be wrong if the cost stopped people from taking out travel insurance."
Sam Barrett is a freelance journalist