UK Travel Insurance: Market Dynamics and Opportunities 2016

The UK travel insurance market declined by 12.3% to £625.4m in gross written premium (GWP) in 2015. This is a result of fewer policies being written, in addition to rates that have been prevented from hardening due to market competition. The number of policies written has been falling despite rises in the number of UK residents traveling abroad. The majority of UK travelers visit Europe, which has led to Britons relying on European Health Insurance Cards (EHICs) instead of purchasing travel insurance in the desire to save money. This trend has been driven by younger travelers as opposed to older generations, for whom travel insurance is a more important and better understood purchase due to their higher vulnerability and pre-existing medical conditions. The profitability of the market is struggling as competition is hindering rate increases, while claims costs for insurers are rising due to medical inflation despite the number of claims being in decline. Recent years have seen a shift towards annual policies over single-trip cover. This is a result of more frequent travel and the convenience of an annual policy; the rise of annual travel insurance distributed via added-value current accounts; and fewer individuals booking a holiday and consequently single-trip insurance through a tour operator or travel agent. Travel abroad by UK residents has been increasing over recent years as a result of an improving economy following the financial crisis of 2007–08. However, following the UK’s decision to leave the EU, it is forecast that pressure will be put on household disposable income. Furthermore, traveling abroad will become more expensive as a result of the weakened pound, which will impact travel trends and consequently the travel insurance market, until the economy begins to recover.

Scope

Total claims costs have risen annually by 6.8% to £364.5m in 2015.

27.6% of those with travel insurance had cover through their current account in 2015.

UK residents made 65.7 million trips abroad in 2015, predominantly to Europe.

The UK travel insurance market is forecast to be worth £628m in 2020.

Reasons to buy

Benchmark yourself against the rest of the market. Ensure you remain competitive as new innovations and insurance models begin to enter the market.

Be prepared for how travel trends and the UK travel insurance market will be impacted by socio-political and economic factors over the next few years.

Companies mentioned

ABI

Thompson

Airbnb

Columbus Direct

Collinson Group

Silver Arrow Systems

ABI

Thompson

Airbnb

Columbus Direct

Collinson Group

Silver Arrow Systems

Table of Contents

EXECUTIVE SUMMARY

Competition is preventing rates hardening, despite rising claims costs

Key findings

Critical success factors

MARKET DYNAMICS

Introduction

The UK travel insurance market continued ...

EXECUTIVE SUMMARY

Competition is preventing rates hardening, despite rising claims costs

Key findings

Critical success factors

MARKET DYNAMICS

Introduction

The UK travel insurance market continued to decline in 2015

The UK travel insurance market reported a further drop in value in 2015

The proportion of GWP from annual travel policies has grown by 6.3pp since 2011

The number of policies written has remained steady following four years of decline

Annual policy premiums have remained steady, whereas single policy rates have fallen

Premium rates and average claims costs are highest for older policy holders

The market COR is estimated to be below 100%

Banks and building societies offering travel insurance are a convenient choice

Over a quarter of those with travel insurance are covered through their current accounts

Added-value accounts are becoming more popular

There are disadvantages to travel insurance provided through bank accounts

Claims costs are rising despite the number of claims being in decline

Total claims costs have reached a five-year high

Medical expenses drove up total claims costs in 2015

The number of UK travel insurance claims has been declining since 2011

The average cost per claim is in long-term ascent across all perils

Travel abroad by UK residents is increasing

Both the number of visits and expenditure abroad by UK residents are increasing

UK residents are traveling abroad to go on holiday and to visit friends and family

Over three quarters of trips made by UK residents abroad are to Europe

Brits are traveling further afield and seeking action-packed holidays

Airbnb and home-sharing are becoming popular ways to travel

Travel abroad is influenced by socio-political, health risk, and economic factors

The socio-political climate of a country is now a concern for holiday makers

Insurers and holiday companies are responding to those vulnerable to disease epidemics

Exchange rates can influence which holiday destinations Britons choose

Expenditure on the luxury of travel is dependent on household disposable incomes

THE MARKET GOING FORWARD

The UK travel insurance market is forecast to be worth £628m in 2020

GWP for the UK travel insurance market will fall towards 2017 but then start to grow

The economy will dictate household disposable income and spend on holidays abroad

Travel insurance will become more important if the EHIC system ends following Brexit

Premiums will have to rise in response to rising claims costs

The FCA will respond to appointed representatives mis-selling insurance

The FCA found that appointed representatives have not been properly regulated by their principal firms

Appointed representatives will remain an area of focus for the FCA

Buying travel insurance and receiving claims payments will get easier

Self-service kiosks are appearing in UK airports for last-minute cover

Branded debit cards will transfer claim payments in real-time

Big data will play a part in personalization and managing risk

Wearable healthcare technology will be able to assess the risk of particular individuals

Wearable technology could help diagnose and manage medical conditions

Wearable technology could improve the relationship between insurers and policy holders

APPENDIX

Abbreviations and acronyms

Definitions

COR

Gross premium

Net premium

Methodology

Primary and secondary research

Market sizing methodology

Bibliography

Further reading

About Verdict Financial

Disclaimer

List of Tables

Table 1: UK travel insurance market GWP (£000s) and annual growth (%), 2011-15

Table 2: Share of the UK travel insurance market GWP by policy ...

Table 1: UK travel insurance market GWP (£000s) and annual growth (%), 2011-15

Table 2: Share of the UK travel insurance market GWP by policy type (%), 2011-15

Table 3: Number of travel insurance policies written (000s), 2011-15

Table 4: UK travel insurance premium rates by policy type (£), 2011-15

Table 5: UK travel insurance average premiums, claims costs, and frequency by age, 2015

Table 6: UK travel insurance market gross loss ratio (%), 2011-15

Table 7: UK travel insurance claims volume, cost, and frequency, 2011-15

Table 8: UK travel insurance total claims costs by peril (£m), 2011-15

Table 9: Number of UK travel insurance claims by peril (000s), 2011-15

Table 10: Average claims cost of UK travel insurance by peril (£), 2011-15

Table 11: Number of visits abroad (000s) and expenditure abroad (£m) by UK residents, 2011-15

Table 12: Number of overseas trips by purpose (000s), 2011-15

Table 13: Number of overseas trips by region (000s), 2011-15

Table 14: Number of overseas trips by country (000s), 2011-15

Table 15: British pound exchange rates against the main global currencies, 2012-15

Table 16: Real household disposable income annual change (%) and unemployment rate (%), 2006-15

Table 17: UK travel insurance market GWP and forecast projections (£m), 2011-20f

Table 18: Forecasted annual GDP percentage growth (%), 2011-20f

List of Figures

Figure 1: The travel insurance market continued to decline in 2015

Figure 2: Annual policies continue to gain GWP share of the UK travel insurance ...

Figure 1: The travel insurance market continued to decline in 2015

Figure 2: Annual policies continue to gain GWP share of the UK travel insurance market

Figure 3: Fewer customers are purchasing travel insurance through tour operators

Figure 4: Annual policies are more popular than single trip across most distribution channels

Figure 5: The number of annual policies has grown, while single policies fell in 2015

Figure 6: Market competition makes it hard for insurers to increase rates

Figure 7: The gross loss ratio has risen year-on-year, suggesting a worsening COR

Figure 8: Over a quarter of customers have travel insurance through their bank account

Figure 9: The estimated average claims cost has been rising over recent years

Figure 10: Medical expenses drove 58.2% of growth in total claims costs in 2015

Figure 11: The number of UK travel insurance claims continues to fall

Figure 12: Medical expenses saw the greatest rise in claims costs in 2015

Figure 13: Visits and expenditure abroad by UK residents continued to rise in 2015

Figure 14: The majority of overseas visits made by UK residents are for holiday purposes

Figure 15: The majority of overseas visits made by UK residents are to Europe

Figure 16: Egypt and Tunisia have seen drops in tourism, whereas visits to Greece increased in 2015

Figure 17: Travel trends are affected by socio-political, health risk, and economic factors

Figure 18: Household disposable income and unemployment rates further improved in 2015

Figure 19: The market is forecast to fall towards 2017 but then rise to be worth £628m in 2020

Figure 20: Economic growth will slow in 2017 following Brexit, but will then begin to recover

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