Price cutting and increased regulation in the travel insurance market may force some firms to give up or specialise in niche products, according to financial research company Defaqto.
The report revealed that more than 165 providers are currently fighting for gross written premiums of about £670m a year and that many firms may find the cost of acquiring sales economically unviable.
Some insurers have commented that their experience of FSA rules has caused them problems with the amount of time that customers need to spend on the telephone and the amount of information they need to give for sales.
Defaqto believes the smaller banks and building societies are the most likely to look to exit the travel insurance market by turning to white-labelling while others focus on niche markets such as gap-year travel or adventure sports in order to write profitable business.
Survivors are likely to include large intermediaries who already have the economy of scale to produce acceptable profit levels and can operate as providers to the white-label introducers.
Defaqto's research shows single trip premiums have fallen over the past year by 5.5% and annual policies by 6.5%. It said premiums are now below 2002's levels.
Defaqto said part of the reason for this has been the rapid growth in the number of providers, currently over 110, which sell travel insurance on the internet. In addition, there are numerous other sites where travel insurance can be sourced or purchased.
Prices have also been kept competitive by the influence of “web-aggregators”; sites on which different provider prices are compared and then can be purchased, either directly or via a link.
With fewer than half of all policies now sold by travel agents, some single trip premiums cost no more than £8 or £9 for a two-week holiday.
Brian Brown, Associate Director at Defaqto and author of the report, said: “The pressure on price has led some providers to apply selective pricing based on countries to be visited, how far ahead the travel is to take place, the month of travel and where the policyholder lives.
“With little prospect of improving demand, some insurers are starting to concentrate on niche insurance areas such as gap –year, extended stay or adventure travel. Others may well be considering whether or not to remain in the market at all.
"Successful providers may be those who ally themselves with major distribution brands where sales can be made through cross-selling rather than by direct promotion”.
