Risk: Travel

In a preview of its report due to be published in September this year, Datamonitor says premium income was about £710m in 2008, falling from a record £718.8m the previous year.

In its report for 2007, Datamonitor had forecast the market would reach £933.5m in GWP by 2012, with annual growth averaging 4.1% – higher than historical averages as premium rates would be forced up to maintain profits.

However the economic crisis means that fewer people are travelling abroad so fewer annual policies have been sold.

“The lack of multi-trips is going to drive down the attractiveness of annual cover,” Datamonitor analyst Andrew Haslip says. “If you’re only going to be doing one, maybe two trips in the year, it’s not something you’re going to want to invest in.”

But he adds: “Some of the aggregators have quite competitively priced annual-trip policies. So it can be better to buy one if you are planning [at least] two trips in a year.”

There were five years of steady growth for annual policies between 2003 and 2007 with an average yearly increase of 3.9%. In 2007, annual policy premium income reached 48.4% of the travel market’s total GWP. The overall number of trips abroad by UK residents that year increased by 2.3% to 71.1 million.

But according to the Office for National Statistics, UK residents made 65.5 million visits abroad in the 12 months to April this year (not seasonally adjusted), a 7% fall from 70.1 million in the 12 months to April last year.

Visits to Europe decreased 6% to 52.1 million, visits to North America dropped 10% to 4.2 million and trips to other parts of the world fell 6% to 9.2 million.

The biggest growth was outside the traditional summer holiday season – particularly in April, May and June. But this has dropped off since 2007.

Meanwhile, the level of travel during the summer months has remained steady. But with the weather in the UK better than it has been in three years, this is expected to dip during the current summer season.

“People might holiday in the UK as opposed to abroad,” Haslip says. “It also might mean a lot more travel closer to home – in Europe, for instance, as opposed to North America and Asia.”

Haslip believes the recession is the main cause of the drop in travel abroad and does not believe swine flu or other factors have had much effect.

“[Swine flu] has caused more bad publicity for the industry with some people having difficulty claiming for cancelled trips to Mexico. I don’t think it’s had much of an impact on the market in terms of GWP but in terms of negative publicity, that’s never something [insurers] need,” said Haslip.

Travel insurance regulations

Since the Financial Services Authority (FSA) began regulating connected travel insurance in January this year, five directly authorised network firms have been created, with several hundred appointed representatives (tied agents) between them.

An FSA spokesman said that the new regime, which covers travel insurance sold alongside holiday packages and tours, is “working well” at present.

However he added the regulator is concerned that consumers booking holidays online have to opt out of buying insurance as often the box for this option has been pre-ticked.

“We are looking into this practice as we do not consider that it is treating customers fairly,” said the spokesman.

The FSA’s concerns echo those of the consumer group Which?, which last month blasted four airlines including easyJet, Jet2, Monarch and Air Berlin.

The airlines were accused of flouting EU laws by automatically adding travel insurance during the booking process.

Meanwhile, a spokesman for Aviva – which has not signed any travel agent business – says: “Considering the big build-up (to connected travel insurance regulations) I would say we have seen relatively little activity in this area.”

Two of the biggest tour operators are appointed representatives: Thomas Cook is an appointed representative of AXA, and TUI Travel is an appointed representative of Mondial Assistance Travel Insurance (underwriting through its insurance arm Elvia Travel Insurance International).

The Association of British Travel Agents (ABTA) offers its members the introducer-appointed representative scheme ABTASure (arranged by Citybond Holdings, underwritten by Europ Assistance Holding).

“I would suspect the smaller providers have looked to this scheme to fulfil their requirements,” the Aviva spokesman said.

Market share

The UK travel insurance market remains fiercely competitive, both for underwriters and distributors. AXA continued to lead the pack in 2008 with GWP of about £180m, down slightly from 2007. Aviva had about £100m GWP followed by RBSI with £96m. There’s a sizeable gap to the rest of the competition, with Fortis posting £50.4m and AIG £50.3m.

In its 2007 report, Datamonitor said market expansion had been boosted by a slight increase in product penetration. Due to competitive pressures, rates fell slightly, particularly in the annual policy sector.

Haslip says 2008 did not bring any noticeable shake-ups in new products or pecking orders. “It’s been quite steady. They have well-established books – [Aviva] is a mainstay, AXA is not going anywhere either.”

In 2007, AXA accounted for 27.1% of the market, an increase of 6.7%. The loss of some key accounts such as the broker Direct Travel Insurance, and the continued contraction of smaller travel agent channels – where AXA had a strong presence – did not hurt its book.

The biggest recent news for AXA is its new five-year contract with Ryanair. It is an optional product – customers have to tick a box if they want the insurance. This allows AXA to steer clear of the recent controversy surrounding easyJet, Jet2, Monarch and Air Berlin. The four airlines automatically added travel insurance during booking.

Aviva also remains confident despite the recession. A spokesman says: “Both annual and single-trip policies continue to be popular with consumers. Travel insurance tends to respond quickly to changes to the travel trade generally. For example, insurers have responded to the increase in numbers of independent travellers who do not want to take packaged holidays, by offering more tailored policies.”

Aviva adds that stand-alone insurance accounts for a small percentage of broker business (about 3% – 5%) as insurance tends to be offered with other policies. It says travel insurance is generally transacted via direct insurance, aggregators and tour operators or travel agents.

Datamonitor predicts that the market will remain “fiercely competitive” over the next four years.

In its 2007 report, it said: “Travel insurance, whether it is sold as single-trip or annual cover, is a relatively short-tail risk that allows competitors to easily dip in and out of the market, unlike some other longer-term markets (such as employers’ liability).

“This ease will unfortunately act to keep the market highly competitive on the underwriting side through the addition of new capacity in the form of new underwriters, as well as existing players increasing their appetite for travel insurance business. The sustained high levels of competition … will keep pricing by underwriters keen, though it is assumed that the necessary premium rate increases will occur.”

Claims

Claims frequency has remained low in recent years, ranging from 4% to 4.2% between 2004 and 2006. The recession has meant more people are likely to make a claim but these tend to be small. Also, any rise in claims has been tempered by the decrease in travel.

“Our claims statistics over the past 12 months have been fairly stable so we haven’t noticed any particular material increase or decrease,” says Helen Withers, managing director for travel legal expense insurer Arc Legal Assistance. “We think two factors are cancelling each other out – people are going on holiday less although there may be more claims arising when they do go on holiday. They’re more money-conscious.”

Arc Legal handles personal-injury claims such as slips and trips, and food poisoning. Usually, claims of this nature arise due to poor health and safety standards – something the company believes is a growing issue.

“Over several years we’ve seen people travelling further afield for their holidays as longer-haul flights have become cheaper. But they tend to expect the same sort of health and safety standards as in the UK. We’ve a lot of new entrants into the EU and many people expect similar standards to apply to all European countries … there are very different regulatory regimes and you can’t expect the same controls over facilities.

“A typical claim might be a slip at a swimming pool that results in a broken bone or some other significant tissue injury. To make a claim you need to prove negligence, so you look at whether the surface around the pool was appropriate given the location, and the fact that it was likely to be wet. In the UK there are regulations on the type of surface used so that it’s as non-slip as possible. In other countries that premiss wouldn’t necessarily apply in the same way.”

It remains to be seen if the drop in travel will balance out claims, and whether GWP will be slashed. Withers says: “We’re waiting to see in September or October whether there’s any effect. I think there’s probably a view in the market that some people are still going overseas for their main family holiday, but they might be reducing the number of shorter breaks and long weekends that they’re taking.” IT