COVID-19 will decimate the travel insurance market as disruption continues and the summer season approaches
The travel insurance industry has taken a hit from the outbreak of Covid-19. Soon after the virus started spreading, insurers registered an increase in claims. GlobalData Financial Services examine
While countries around the globe have started easing lockdown measures, holidaymakers continue cancelling their trips as travel disruption continues. Hopes for restoring pre-pandemic sales any time soon are dissipating.
A holiday is the most common reason for travel. According to GlobalData’s 2019 UK Insurance Consumer Survey, 86% of respondents cited this reason for purchasing travel insurance. But while lockdown measures are being eased, travel disruption continues.
A large proportion of flights are being cancelled, popular holiday destinations such as Spain and Italy are introducing quarantine measures for international travellers, discussions regarding the introduction of social distancing measures on planes have become commonplace, and several airlines now require passengers to wear face masks.
Furthermore, governments are still advising against non-essential travel.
The summer season is approaching, but our COVID-19 Tracker Consumer Survey finds that consumers continue postponing or cancelling trips despite the easing of lockdown measures.
In the week commencing 5 May 2020, just over half (51%) of UK respondents stated they had either cancelled or changed upcoming international travel plans, compared to the 31% that upheld their plans to travel internationally.
In China, where no COVID-19 deaths have been registered for a month, 74% of respondents had cancelled or changed upcoming domestic travel, while the proportion was slightly higher for international travel. This indicates that it will be some time after reaching the pandemic peak before the willingness to travel returns.
Coronavirus has eroded holidaymakers’ appetite for travel as concerns about catching the virus persist. Restoring consumer confidence will take time. Travel insurers can expect their return on premiums to stay low in the near future. Not only has coronavirus led to a record high cost of claims – initial estimates by the Association of British Insurers indicate that this could mount to at least £275m ($335m) in the UK alone – but new business premiums remain slim.
Travel insurance sales will remain compromised as many airlines are not expected to resume all of their flights straightaway. In addition, prospects are further aggravated as airlines anticipate low passenger capacities as flights are resumed, while the prospects of introducing social distancing measures onboard – such as blocking the middle seats – would further compromise travel insurance sales.
As the coronavirus is set to cause further chaos during summer seasons, travel insurers are unlikely to rebound from the crisis any time soon. Recovery of the travel insurance market will come hand in hand once customers feel safe and financially secure.