Brokers are losing out on travel insurance But so is the whole industry, says James Sullivan.
As anyone involved in the personal lines market will be quick to tell you, easily one of the most controversial areas concerning the introduction of statutory regulation for insurance intermediaries this January was travel insurance.
The FSA's decision not to regulate travel agents has caused uproar in the insurance industry, with brokers claiming that excluding travel agents creates a two-tier system and makes a mockery of the government's claims to create a modern and fair regulatory regime.
As one senior industry figure laments: "All we're after is a level playing field. The worry (with the FSA's decision) is that one side will benefit more than the other."
Travel agents winning
It would appear that the discontent will remain for some time yet, as the regulator is not set to revisit the issue until 2007. Although travel agents have won the day for the time being on the regulatory front, they are nonetheless losing out as far as consumer demand is concerned.
Between 1999 and 2004 the number of holidays sold annually through travel agents declined by 4%, and their former dominance of the sales channel is now no longer.
In 2004, according to research undertaken by Mintel, an estimated 19.7 million inclusive tours and 22.5 million independent holidays were taken by the British abroad. Of this total of 42.2 million holidays abroad, an estimated 21.2 million will be booked via travel agents.
Yet, although their share of the overall sales market is declining, travel agents remain a potent force in the distribution of insurance, according to Steve White, regulation and compliance manager at Biba.
"The reason travel agents sell travel insurance is that it is the point at which customers are most receptive to it - though there might be something on the customer's radar which says this might not necessarily be in his best interest."
Unfortunately, the future doesn't look especially promising for brokers when it comes to beating the competition either. In theory brokers should have the winning hand now they are regulated.
But such a distinction just isn't going to do them any favours in the eyes of the public, according to James Musson, technical manager for travel insurance at First Assist.
"It depends how you play it, says Musson. "If brokers want to major on the fact they're FSA-regulated, that's all very well. But I'd question whether the British public is interested. The Association of British Travel Agents is simply a better brand."
It's not only insurance brokers who are feeling the pressure when it comes to travel, though. The development of cheap flights and the growth of short breaks to Europe has meant that underwriters are also losing out when it comes to the purchase of insurance, with many people simply deciding to dispense with cover altogether.
"It's something we're examining at the moment," says Dawn McMullen, marketing development director for travel insurance at Norwich Union (NU). "Out of people who go travelling, those most likely to underinsure are those on short breaks, with some 43% uninsured."
She says from NU's point of view, it's far better for people to buy annual polices than single-trip insurance. It's not only a matter of bigger premiums.
"A four-day break in Europe would cost £11.23, a fortnight is £20.14, and an annual policy is £40.93. But every time someone takes out insurance for a short break the administration costs mount up."
First Assist's James Musson agrees that the growth in short trips is doing the industry no favours, but suggests that this is counterbalanced by other positive factors.
"There has been a shift over the past 10 to 15 years from the purchase of single-trip to annual insurance." says Musson. "The increase in people buying travel cover is partly due to the advent of cheap airlines and increased travel. It's just as cheap to fly to Barcelona as it is to go to York."
Single-trip growth
He adds that the growth in short breaks hasn't necessarily manifested itself in a concomitant growth in single-trip insurance. "There hasn't really been a major effect in the last year or so," he comments with regard to possible greater volumes of single-trip insurance.
"Most of the trips are in Europe, where you have the E111 (the European reciprocal state health scheme), so the take-up isn't huge.
"Also a lot of people who go for weekend breaks book them on the internet, and I'm not sure how much they buy in this way."
Despite the fact that the growth in weekend breaks is not necessarily leading to a similar boost to insurance sales, the market does not seem overly concerned - at least for the time being.
In the long term underwriters and brokers might want to show more concern over an erosion of sales through the dominance of the internet and the apathy shown by travellers on short trips.
But life is rosy. And the reason? While most of the personal lines sector is coping with the challenges of a softening market, perversely the travel insurance industry is enjoying continuing hard conditions.
Musson explains: "Rates have hardened over the past year or so with GE effectively pulling out of the market. They came in with a big bang five or six years ago, but now capacity has reduced and brokers are trying to price on a profitable basis."
There is no doubt that the current favourable conditions for underwriters will not remain quite so good for long. Although capacity has reduced, competition is once again hotting up, meaning that undercutting on premiums is once again starting to become commonplace and erode profitability.
As one intermediary says: "You're almost quids in at the moment - though the prices that some people are quoting are starting to look a bit silly."