General Insurance Analyst Danielle Cripps has been working on our “UK Travel Insurance: Market Dynamics and Opportunities 2016” report. Here, we ask her about the key findings of her research, new and developing trends, and how she expects the market to develop over the coming years.
What are the main challenges the UK travel insurance market faces?
The market is struggling with profitability as competition is hindering rate increases. Meanwhile, claims costs for insurers are rising due to medical inflation, despite the number of claims being in decline. Medical expenses are the largest cost for travel insurers, accounting for over half of total claims costs in 2015. Medical costs are inflating around the world, which means that if UK residents require treatment abroad then the cost for insurers will be higher over the coming years.
Market penetration is also an issue where Britons traveling to Europe have been relying on European Health Insurance Cards (EHICs) instead of travel insurance. Younger travellers have been driving this trend, which is a result of misunderstanding the need for insurance if in possession of an EHIC and a desire to save money by not purchasing insurance. However, EHICs are not a substitute for travel insurance. The recent vote to leave the EU and the focus on UK residents potentially not being able to benefit from the EHIC system in the future has raised awareness of the need for travel insurance, which is expected to influence more Britons to purchase cover.
Have there been any shifts in the market over recent years?
UK residents are making more visits abroad per year, which has been influential in driving the growth of annual policies. It is often more cost effective to buy one annual multi-trip policy than multiple single-trip policies if traveling numerous times per year. Annual policies are also more convenient as they provide longer-term cover, and renewal only occurs once a year.
There has also been a rise in the popularity of added-value current accounts, which has contributed to the increase in the number of annual policies sold as an account feature. Meanwhile there has been a decline in the number of customers buying travel insurance through a tour operator, travel agent, or as part of a package where single policies tailored to the needs of the arranged holiday are often a common add-on.
What does the future of the UK travel insurance market look like?
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, although tourism has been moving away from areas of political instability. But following the UK’s decision to leave the EU it is forecast that pressure will be put on household disposable income. Furthermore, travel 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.
By Danielle Cripps, General Insurance Analyst