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How has the travel insurance industry recovered from COVID-19?

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There’s no doubt that COVID-19 has seriously impacted the travel insurance industry.

Data from the Office for National Statistics (ONS) shows that air passenger arrivals to the UK fell by 98.3%. Accommodation and travel agencies saw a drop in turnover of over 90%.

With the introduction of lockdown, travel came to a stop.

Even when the initial lockdown lifted, continuing uncertainty about COVID-19-related rules made travel difficult.

So, what impact has this had on travel insurers? How have they recovered? And what have been the long-term changes in the travel insurance industry since the pandemic?

Lockdown meant that virtually all air travel ground to a halt. And even as restrictions started to ease, people were understandably reluctant to begin travelling. This impacted the travel insurance industry in 3 key ways:

1. Initial lockdowns dramatically reduced custom for insurers—and choice for customers

The data collected by the ONS shows that UK air passengers fell 98.3%, from 6,804,900 in February 2020 to 112,300 in April 2020.With few people travelling, the market for travel insurance disappeared.

In the UK, lockdown lasted for about a year, with different levels of restrictions throughout that time. Between late March and June 2020 and January and July 2021, national restrictions required people to stay at home. Then the government brought in the tier system with local rules between September and November 2020.

During these periods, the Foreign, Commonwealth, and Development Office (FCDO) advised against travel to any country for a time.

Travel insurance policies were invalid in regions where the FCDO advised against travel. And during COVID, the FCDO advised against travel in general.&

As a result, many travel insurers pulled out of the market entirely. In April 2020, Which? surveyed 75 travel insurers and found that 31 had suspended travel insurance sales. Many of these insurers didn’t return to the market until October 2021, as reported by the Guardian. Unfortunately, some didn’t return at all.

This meant there weren’t many travel insurance providers for people to choose from if they needed to travel during this period.

2. Due to enduring uncertainty, COVID-19 cover became an important feature of the market

After the initial lockdowns, both consumers and the insurance industry entered into a long period of uncertainty.

This period lasted between the end of the first lockdown (in June 2020) and early 2022, when most people had the COVID-19 vaccinations. Throughout this time, rules in the UK changed regularly and often with little notice.

Internationally, different countries adopted various measures for incoming travellers. These requirements for COVID-19 testing, self-isolation, and vaccination were constantly evolving.

This complex scene made travelling difficult for consumers—and operations difficult for insurers. Yet many consumers still had to travel, for instance, to visit family members in need. According to the ONS, UK residents made 19.1 million visits abroad in 2021, compared to 15.3 million in the previous year.

To enable them to travel more securely after lockdown, consumers looked specifically for COVID-related insurance cover.

A 2022 Post Office study showed that consumers felt that COVID-19 cover was of similar importance to protecting possessions on holiday. 32% of survey respondents mentioned that coronavirus cover was an important factor in choosing insurance policies, with 31% also mentioning possessions cover.

COVID-19 cover protected against cancellation if the policyholder contracted COVID-19 before travelling, as well as medical cover if they picked up the virus abroad. Some policies also covered cancellations due to self-isolation or changing travel advice.

Unfortunately, this may have led to confusion for some customers.

3. Customers often struggled to understand what their insurance covered

Many customers successfully took out and used COVID-19 travel insurance. However, the continuing uncertainty meant that many people were confused about what their policies actually covered.

For instance, a report by the BBC found that 9 out of 10 policies covered cancellations due to a positive test. However, only 6 out of 10 covered cancellations due to self-isolation. It’s possible that many customers weren’t aware of that.

This wasn’t the fault of insurers. But as the industry was dealing with an unprecedented pandemic, customers often found policies difficult to understand. This meant they were often unhappy.

For instance, during the financial year 2020/21, the Financial Ombudsman Service received 8,175 complaints regarding travel insurance—nearly 4 times as many as in the previous year, according to the ITIJ. However, the number of complaints fell considerably in 2021/22.

With each country having a different set of COVID guidelines, it's not surprising that consumers struggled with their policy details.

For instance, in 2022, the Post Office found that only 65% of travellers were aware of the COVID-19 regulations for the country they were visiting. Only 59% knew how to find details of rules and restrictions in countries they plan to visit.

But crucially, only 52% of travellers knew what their policies did and didn’t cover in terms of COVID-19 and trip cancellation. This meant that nearly half didn’t really know the terms of their policies.

COVID-19 presented a serious challenge for travel insurers. But what’s the industry looking like today?

1. Consumers are travelling again, even in the face of the cost of living crisis

UK consumers started travelling again as soon as they could after the pandemic. According to the ONS, nearly 5 times as many people went abroad in 2022 as in 2021.

GlobalData’s research suggests that revenue generated from travel insurance purchases increased by 66.4% in 2021 (vs 2020).

This has continued to be the case even in the face of the cost of living crisis. Inflation may have increased the prices of virtually everything, including insurance, meaning consumers have less to spend. Yet there’s evidence to show that Brits still prioritise travelling.

According to research by Alvarez & Marsal, 48% of Brits have increased their travel budgets for 2024. 31% said this was only possible because they were prioritising travel over other expenses.

While GOV.UK figures show that travel numbers in 2022 haven’t yet returned to 2019 figures, there’s plenty of demand for travel insurance.

2. The travel insurance industry is recovering strongly

Research has shown that 1,066,364 people bought travel insurance in summer 2023, vs 894,112 during summer 2022.

It’s the largest underwriters that were most resilient during COVID-19, with some smaller insurers leaving the market in the early days of the pandemic and not returning.

As many challenger brands have left the market, consumers may have less choice overall – but there are still plenty of options. We’ve found that customer needs are still well served by the current travel insurance options. Even companies offering more specialist products are still performing strongly.

Even with the pandemic now over a year behind us, we’re still experiencing its impact. Here are 3 ways that the market has evolved in the aftermath of COVID-19:

1. Consumers are buying travel insurance earlier than they used to

Post-pandemic, consumers are buying travel insurance earlier than they used to, according to research by AllClear.

32% of customers surveyed said they would book travel insurance “as soon as they booked their holiday”. A further 17% said they would buy it “shortly afterwards”.

At the start of the pandemic, travel insurance wasn’t a great deal for customers, as COVID-19 wasn’t yet covered. The policies weren’t valid in countries where the FCDO advised against travel to.

With COVID-19 in the past, the perceived value of travel insurance has remained positive. With people buying cover earlier, insurance now seems to be at the front of mind for consumers.

2. Customers are choosing higher quality products with better cover

At Confused.com, we’re seeing that people are increasingly purchasing higher quality travel insurance products. While price is still the main factor behind purchases, particularly during the cost of living crisis, Confused.com users are willing to pay more for higher levels of travel insurance.

For instance, they’re choosing policies with higher Defaqto ratings, or higher coverage in key areas such as cancellation, medical, and baggage.

It’s a finding corroborated by AllClear’s research. It revealed that 49% of holidaymakers aged over 50 said they would be inclined to opt for the travel insurance with the best cover. Only 9% of this age group—who are arguably more vulnerable to the effects of COVID-19—said that they would still look for the cheapest premium.

A preference for higher-quality insurance products has grown since the pandemic. In the same study, 40% of respondents said picking the right travel policy was more important to them than it was before the pandemic.

At Confused.com, we’re making it easier for customers to access the quality products they want.  For instance, we include every policy’s Defaqto rating on our travel insurance comparison pages so customers can see the highest-coverage options at a glance.

3. The travel insurance industry will continue to rebound

We expect that travel insurance will continue its strong recovery.

Forecasts for 2024 from the World Travel & Tourism Council and UN Tourism show that consumers are continuing to travel. They foresee that 2024 could be the year that the demand for travel finally exceeds that of 2019.

This bodes well for insurers. In this context, there’s no reason why consumers shouldn’t continue to buy travel insurance.

In May 2023, the World Health Organisation officially declared that the global health emergency was over. Since then, the travel insurance industry has recovered well—and long may that recovery continue.

At Confused.com, we’re helping that recovery. Alongside making it easier for customers to find the policies that match their needs, we’re also bringing new business to insurers.

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

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