Travel insurers weather the Covid storm

Travel insurance has always been a weather-sensitive industry, but during the last couple of years, it has also had to grapple with some very different types of storm clouds.

Phil Denman, managing director of specialist wholesale broker Healix Insurance Services, explained: “We’ve had two fairly seismic events in terms of Brexit, with European insurers having to go through transitional arrangements to do business in the UK, and [the Covid-19 lockdowns].

“Companies were having to work out their legal exposures [while] travel arrangements were subject to widespread cancellation, leading to around half a dozen major players making exits.”

The withdrawals of Mapfre and Union Reiseversicherung (URV) from the UK travel insurance sector were particularly felt - between them, they accounted for around a quarter of the UK market in this line of business.

This drop-off in capacity in what has always been a competitive, high volume, low margin class is one of several factors that have resulted in premium rate hikes – interviewees for this feature told Insurance Times that travel premiums have increased between 10% and 30% since before the pandemic.

Worldwide medical inflation has also contributed to cost increases, as has the need for insurers to transport people elsewhere when hospitals have been full of Covid-19 sufferers.

Plus, claims spiked as a result of polymerase chain reaction (PCR) tests taking place in the two days before travelling, as insurance policies typically paid out if a holiday cancellation occurred within seven days of departure.

And let’s not forget that pandemic-linked lockdowns resulted in insurers selling virtually no annual multi-trip policies and very few single trip covers, alongside issuing those who had already bought cover with full or pro-rata refunds. The notable exception here was the business travel sector.

Dan Penny, account executive at specialist wholesale broker Crispin Speers and Partners, said: “Demand stayed pretty level during lockdown because most corporate business is written on an annual multi-trip basis and, although the amount of travelling dropped off, businesses basically wanted to keep cover in place in case travel became possible.”

Cover changes

Further price pressure has resulted from most travel insurers now automatically including Covid-19 cover in their policy wordings – previously, it had to be purchased as an optional extra.

However, the exact extent of coronavirus cover can vary dramatically from one insurer to another.

Dipesh Patel is senior underwriter for accident and health at Jackson Lee Underwriting, which is trade body Biba’s main travel insurance partner.

He told Insurance Times: “Some insurers only offer medical expenses and repatriation to the UK for Covid-19 [cover], but exclude cancellation - although the more reputable policies include the latter.

“The Biba endorsed product even allows cancellation if the insured person, their travelling companion, or a member of their household get Covid, but others restrict it to [just] the insured person.

“The Biba product also pays for reasonable accommodation costs when someone gets Covid, whereas others place limits - these can be as low as £1,000.”

Another major recent cover change for this line of business is that all travel insurance policies now include a general pandemic exclusion for anything – except Covid-19 – that is considered by the World Health Organization to be a pandemic – although a small minority of insurers still cover these defined pandemics if a place has been deemed safe by the UK government’s Foreign, Commonwealth and Development Office.

Otherwise, travel insurance policy wordings and excess levels have remained largely unchanged since 2019 and there is little evidence of new players entering the market.

The exception to this trend is specialist broker BrokerSure, which teased that it will be launching a scheme with a new market entrant this month (June 2022).

No longer a ‘grudge purchase’

Brokers and insurers have told Insurance Times that current business levels for travel insurance are 70% to 80% of those recorded in 2019.

This is despite a sharp uptick this year as, with travel restrictions lifting, people are taking ‘revenge holidays’ after two years of shelving holiday plans. Many individuals are travelling in larger groups, often to long-haul destinations, and are making it a higher priority to take out cover.

Rachel Temperton, head of travel and tourism at Allianz Partners UK, said: “The key thing is that everyone travelling now has a renewed interest in having insurance because of Covid.

“Formerly, it was a grudge purchase and price was all-important. But [customers] are now going for quality and are scrutinising, not just Covid cover, but also cancellation and curtailment and medical expenses cover.”

There is, however, anxiety in the marketplace that this new impetus could fizzle out next year as the cost of living crisis bites and premiums rise even further.

Peter Hayman, managing director of specialist scheme provider PJ Hayman and Company, said: “People with annual multi-trip policies, including those incorporated within bank accounts, will now be making greater usage of them and, potentially, this may have an impact on [the] claims experience for insurers.

“We are certainly seeing pressure to increase premiums on worldwide cover under our specialist Free Spirit Scheme for people with medical conditions.”

The consensus is that the travel insurance market will not fully recover to 2019 levels until 2023 or 2024 - but not all market participants are convinced that it will, in fact, regain those heights.

Andy Taylor, managing director of BrokerSure, said: “Habits have changed. My family now has two dogs it didn’t have before lockdown, which is likely to diminish our appetite for foreign trips.

“There has also been a massive refocus on the UK, with a huge take-up of caravans and motor homes, [as well as] a reluctance from people with existing medical conditions to travel because of Covid fears.”

Nevertheless, even if the recovery of the travel insurance market remains muted in terms of volume, a continued emphasis from consumers on quality rather than price would mean that the storm clouds insurers have so far weathered have at least had a concrete silver lining.