Travel insurance sees opportunities
The global tourism industry is showing significant growth and the outlook for 2014 is positive. This may be good news for travel insurers, if the industry can adapt to the demands of a tumultuous economy.
Usually, the primary sectors that suffer in a bad economy are the commodities that people can go without. As consumers cut down on their expenses, leisure and luxury spending quickly falls off the priority list and, globally, luxury spending was stagnant by the third quarter of 2013. The tourism industry, on the other hand, has witnessed an unexpected upswing as a number of foreign currencies lose traction against the Euro and the Dollar. Recently, research done by Sainsbury’s Bank Travel Insurance in the UK revealed that around 22 million people in Britain were planning overseas holidays for 2014, while around 20.6 million people were planning a holiday within the country. From the results, the survey estimates that a collective £ 37 billion ( about R664 billion) will be spent overseas by UK citizens throughout the year. While this is good news for the tourism industry in places like Greece and South Africa, it doesn’t completely promise good earnings for every stakeholder in the tourism sector. The findings reveal that these holidaymakers still plan on reducing the cost of their vacations wherever they can. Around 24 per cent of the respondents indicated that they intended to book their holidays independently, going directly to their chosen airline and accommodation providers in a bid to reduce costs. Another 15 per cent has resolved to keep a strict, cost- cutting budget while on holiday. Thirteen per cent of the survey respondents intend to choose the most budget- friendly holiday they can find. Keeping in mind that tourists are looking to slash their extra costs by as much as possible, the company has already started commenting publicly on the rationale of buying travel insurance, stating: “It’s worth ensuring your policy has travel disruption cover as this will cover you for incidents such as airline failure or cancellations – without insurance in place, you may be left out of pocket.”
Better economies selling less insurance
International market researcher, Finaccord’s research over 40 countries, shows that Sainsbury is not wrong in calling potential customers to action. While the global market for stand- alone travel insurance and assistance is expected to rise to $ 18.1 billion by 2017, the research shows that most of the world’s largest and most established travel insurance markets are in decline; this includes Europe and the US. The most opportunity for this expected growth, according to Finaccord, is to be found in Latin- America and the Asia- Pacific region. While Europe was still responsible for around 33.2 per cent of gross written travel insurance premiums in 2013, it is believed that Europe’s significance within the global picture is diminishing rapidly. Finaccord’s findings indicate that the Americas and Asia- Pacific regions are set to overtake Europe on premium sales by 2017. The shift is reportedly fuelled by the rapidly expanding outbound leisure travel sectors of several developing countries, including Argentina, China and India, according to the report. Further, the company estimates that the Chinese and Saudi Arabian travel insurance markets will undergo rapid expansion by 2017.
Weather- related payouts
The vast majority of international insurers have complained about extreme weather events putting strain on the sector. It seems that few countries are safe from the unusual weather that has come to define the decade. For the travel insurance industry, this might prove to be a mixed bag, as recent events indicate. The bitter winter that the US experienced this year, has resulted in a record number of flight
cancellations. Between December of last year and February of this year, US airlines had cancelled more than 75 000 flights, amounting to around 5.5 per cent of the total number of flights scheduled for that period. US- based travel insurance comparison site InsureMyTrip reported that this has led to a sharp increase in calls from concerned travellers and company CEO, Jim Grace, states that the company has seen a marked increase in demand for travel insurance products. Europe also witnessed similar happenings at the end of last year, when Hurricane Xavier caused the cancellation of hundreds of flights for two days in a row. And the examples continue to mount from unusually thick fog in Delhi earlier this year, to volcanic ash in Bali, all of these cutting short or unexpectedly extending vacations through flight cancellations. As the times we live in continue to get more interesting, the international travel insurance industry is undoubtedly faced with an opportunity and an expectation to adapt to the changing landscape.