Travel Insurance Industry Overview
Owing to the rise in spend on business travel by corporate buyers, the spend momentum of the travel industry has increased substantially. The industry is predicted to grow at a CAGR of over 5% between 2018-2023. The business travelers’ segment holds the largest share in the revenue generation of the industry and North America and APAC are among the dominating regions. Increasing number of business travelers from the corporate sector and rising popularity of online booking channels are creating demand for travel insurance policies, thereby boosting the revenue growth of the travel insurance industry.
However, amid increasing spend momentum, technologies, government regulations, relative prices, and market dynamics, the task of strategic planning and analysis in the travel insurance industry has become increasingly fraught with uncertainty. Insurance companies must prepare for the most fundamental transformations that their industry has ever witnessed.
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Challenges Facing the Travel Insurance Industry
Changing regulatory norms
With travel insurance getting popular, jurisdictions are having a close watch on the policies. This increased scrutiny has compelled companies to either enter into regulatory settlement agreements with various Departments of Insurance or to leave the market entirely. NAIC, a standard-setting and regulatory support organization created and governed by the chief insurance regulators from 50 different states also has a travel insurance working group that has drafted a new model law known as the “Travel Insurance Model Act.” The Act promotes public welfare by creating a comprehensive legal framework within which Travel Insurance may be sold in this state. Such legal frameworks will require companies to take a closer look at the entire scope of travel insurance line of business.
Procuring insurance data
For many insurance sectors, data reporting requirements are established. This results in a level of uniformity in how data elements are considered and captured and also facilitates doing analysis at an industry level. The travel insurance industry doesn’t have such structure or reporting requirements. This results in less visibility into the insurance market size and performance. Also, the exposure is not pre-defined among companies. It varies among coverages in a travel insurance policy. Many times, the policy is quoted at a composite price (e.g., percentage of trip cost) for convenience. This can create challenges for insurers analyzing travel insurance data for coverages with exposures that don’t typically vary with trip cost. There are certain data capture limitations as the data collected about the risk may not be as detailed or complete as is seen in other lines of insurance.
Classification of risks
The key aim of risk classification is to segment insureds into groups with similar exposure. It can be done based on many different criteria and policyholder characteristics. However, most criteria used to classify risks for travel insurance differ by the coverage they offer and characteristics of the trip. Some most common risk classification criteria prevalent in the travel insurance industry are mentioned below:
Length of the trip: The exposure to loss for emergency coverage increases with trip length. Insureds traveling on trips of longer duration may be charges comparatively higher than travelers on short trips.
Destination: It plays a key role in exposure to loss. Destinations that require multiple flight connections may increase the exposure to travel delays or baggage delays.
Departure time: Insurers may group insureds by departure month and charge more for trip cancellation coverage as exposure to trip cancellation losses varies due to weather.
Identifying the potential for correlation between risk characteristics in travel insurance is crucial for companies to evaluate risks and minimize exposure to loss.
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Creating a digital loop
Month-to-month expense variations, variation in exposure to loss coupled with long-term contracts makes it difficult for the companies in the travel insurance industry to minimize spend. They require a solution that can convert static documents into data points and make it easier to analyze valuable indexed pricing and penalties. However, capturing this data, converting it into actionable insights, and creating a digital loop with the continuous flow of data and information while ensuring regulatory compliance at times becomes a challenge for travel insurance companies.