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Climate change and travel insurance: How the industry is adapting

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Extreme weather events are becoming more common - and climate change is likely to blame.

2023 was the hottest year since records began. We saw record-breaking heatwaves in Europe, including in Greece, where wildfires on Rhodes caused travel chaos in July.

Storms, floods, and droughts have all become more frequent and extreme too. UK analyses, for example, have found that 50-year floods are happening every 10 years on average.

As the impact of climate change becomes more obvious, are people's travel habits changing? And if so, what does this mean for travel insurance?

Climate change is affecting people's travel plans (and their travel insurance) in 2 ways.

1. Climate change is increasing travel disruption and increasing the number of claims

It was hard to miss the chaotic scenes of holiday-makers on the Greek island of Rhodes in 2023. Travellers tried to escape as wildfires spread across the island.

This is just a single example of how travel plans are being directly impacted by climate change. But the disruptions are not always so apocalyptic.

In the UK in 2022, the Guardian reported that a heatwave melted part of the runway at Luton Airport, and caused cancellations. And in the winter of 2023-24, Storms Isha and Jocelyn were responsible for many disrupted flights. It was the season with the highest number of named storms on record.

As a result of extreme weather caused by climate change, travellers are facing higher rates of disruption. And while it's usually the airline that pays compensation for cancelled flights, insurers are having to pay out for cancelled accommodation, onward travel, and more.

According to UN Tourism, 2024 is to be the year when traveller numbers finally recover to pre-COVID-19 levels. As a result, insurers may expect a higher number of claims than before the pandemic.

According to Swiss Re, in 2022, natural disasters resulted in global economic losses of $275 billion. Of that amount, $125 billion was covered by insurance, marking the second consecutive year where insured losses from natural catastrophes exceeded $100 billion.

This data shows that there's been a 5-7% increase in insured losses over the past 3 decades.

2. Climate change may change travel habits in the long term

With extreme weather events becoming more common, there's much discussion about how consumer travel patterns may change.

It's understandable that people might not want to travel to southern Europe in July or August, if there's a high risk of heatwaves or wildfires. And with less snowfall and higher temperatures in the Alps, it's also a risk to plan a skiing holiday.

But does this mean that people won't travel at all? It's highly unlikely. Data has shown that Brits are prioritising travel spending, even in the face of the cost of living crisis.

Studies have shown that Brits might change their holiday habits. Insure & Go found that 67% of Brits are considering making changes to where and when they travel due to climate change. They may decide to travel later in the year or choose a less-risky destination.

Analyses have forecasted a "polewards shift" in travel. Instead of travelling to places in southern Europe or near the equator, holidaymakers may choose more northern destinations to escape the risk of wildfires.

For insurers, this means that a market for travel insurance still exists. However, as travel patterns change, insurance products may have to change too.

I can see the travel insurance industry changing in 3 ways.

1. Travel insurance could become increasingly important for customers

In the UK, research by AllClear suggests that consumers are no longer waiting until the last minute to purchase cover. Instead, 32% of respondents in the research said they would book travel insurance "as soon as they booked their holiday". A further 17% said they would buy it "shortly afterwards".

It's the same story in the US. According to Squaremouth.com, a US travel insurance price comparison website (PCW), the US travel insurance market has seen a 126% increase compared to 2019.

This increase could be because of the travel insurance industry's recovery from COVID-19. More people are now aware of the risks of disruption. However, it does suggest that holidaymakers are increasingly looking to protect themselves with insurance.

In the face of increased climate-related disruption, consumers want to be reassured that they're completely protected on holiday.

2. Consumers may be looking for higher levels of cover

Since COVID-19, we've seen that travellers are not only buying cover more often and sooner. We've also seen that they're looking to buy higher quality cover too.

AllClear's research showed that 49% of holidaymakers over the age of 50 said they would opt for the best possible quality of cover. Only 9% said they look for the cheapest premium. At Confused.com, since COVID-19, we're seeing that customers in general are increasingly selecting policies with more cover.

We can expect a similar trend to occur in response to climate change disruption too. As consumers become more aware of the risks, they're likely to choose policies that give them higher levels of cancellation or disruption cover. Or they might choose policies with a higher Defaqto rating.

Consumers may be more discerning about precisely what their policies cover too. Data from Defaqto shared by inews shows that 48% of annual and 49% of single-trip travel policies offer no or optional cover for a natural 'catastrophe'. Consumers may specifically seek out those policies that do cover cancellations related to natural disasters.

Overall, the trend is clear. We're seeing more discerning customers who are willing to spend a little more for their cover - and we expect this to continue.

3. Travel insurance premiums will continue to increase, but that won't put off consumers

According to Consumer Intelligence, the price of UK travel insurance policies rose by more than 8% in 2022. We expect climate change to increase average travel insurance premiums further in the long term - for 3 reasons:

  • Claims from additional disruption, caused by extreme weather events, put pressure on insurance prices.
  • The travel insurance market has shrunk after COVID-19, reducing competition and increasing prices.
  • People are generally choosing more expensive policies, meaning average costs are rising.

Yet increased premiums are unlikely to put people off buying travel insurance. In March 2023, in the midst of the cost of living crisis, price was no longer the main consideration for most travel insurance customers. That's according to Consumer Intelligence.

Instead, over half said that "getting the best level of cover" was their top priority. Their second priority was a "quality brand they recognise". Surprisingly, only in third place was price as a consideration.

The same data from Consumer Intelligence added that consumers generally trust travel insurers too. For instance, 87% of respondents said they thought the price they paid was fair in relation to what they were covered for. Plus 81% said that, in the event of a claim, they trust their provider to pay out.

Overall, then, it seems that consumers have a generally positive perception of travel insurers. As a result, if premiums do continue to rise, it's likely that consumers could still be happy to pay.

Climate change continues to impact how people travel. Here are 2 ways that insurers can adapt to this.

1. Insurers could help educate customers on what policies are right for them

A common problem among consumers is that they struggle to understand what their travel insurance policies include and what they don't.

For instance, there was a lot of confusion during the situation in Rhodes in July 2023. The Foreign, Commonwealth and Development Office (FCDO) issued travel advice against travelling to the island, meaning that customers wouldn't get reimbursed for their trip. At the same time, some travellers' policies allowed for claims based on natural disasters, while others didn't.

It became apparent that customers weren't 100% clear on their coverage. While insurers detail the conditions of cover in the policy documentation, they could use different ways of communicating to show policy coverage.

No consumer wants to hear about potential disasters when they book a holiday. But, if they become more common, it could be important for insurers to spell out what's covered to consumers at the point of purchase.

2. Insurers can demonstrate that they have consumers' backs

High-claims events such as floods are frequent in the UK - and they're getting more common. As climate change affects the home insurance market, we've seen insurers helping and advising policy holders in person who have been affected by floods.

This "boots on the ground" strategy communicates to consumers that insurers care about their situation. And it shows that their insurance policies have a real tangible impact - when customers need support, their insurers protect them.

Travel insurers could do something similar in high-claim climate events. For instance, they could have a physical presence (if it's safe to do so), helping customers stranded at airports.

While we've already seen that consumers have trust in travel insurers, it's another way that insurers can maintain their positive image.

As a PCW, we have a regulatory obligation to make it as easy as possible for consumers to find insurance products that fit their needs. This is particularly important in the context of climate change disruption, as well as in other contexts where customers may be confused about their cover.

It's on us to ensure that consumers can access policies of adequate value. And as consumer champions, it's important to us that everyone has the protection they need when travelling.

As part of helping consumers find the products they need, we've added filters to our travel insurance searches. This way, consumers can choose the products that best suit them. We've also added Defaqto ratings to each policy, so it's easier to see the quality of products.

Plus, we continually ask customers for feedback, to improve the customer's journey as well as our offering.

We're already beginning to feel the impacts of climate change. Yet in the short term, at least, that's unlikely to stop people travelling.

In whichever way consumers change their travel habits, travel insurers need to be there for them. For instance, they could help consumers better understand the coverage they need, and help them make claims when disruption occurs.

At Confused.com, we'll continue to help consumers access the policies they need in the face of climate change.

Find out more about what we do at Confused.com.

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