Are Insurers Ready to Capitalize on the Travel Insurance Opportunity?
Vince O. Valenzuela
12. January 2023
December is always an extremely busy travel month as millions of people choose to spend the holidays with families and loved ones, or take a much-needed vacation. This last December was even busier with the World Cup 2022, the once-every-four-year football event where millions of passionate fans travel to root their teams on to victory.
At last month’s World Cup, more than 1.4 million fans visited Qatar, a number that only represents ticket holders and does not include other friends and family members traveling with them. There were more than three million tickets sold for all of the games, needing more than 1,300 daily flights throughout the World Cup. In the end, Argentina was crowned the champion, and while there could only be one winner, millions of fans went home happy with the overall experience.
The Rising Popularity of Travel Insurance
Although travel insurance is not new–dating back to 1864 if not earlier–it is now growing in popularity as more consumers are willing to add it to their travel plans to offset various risk factors. In the last few years, the COVID-19 pandemic and later subvariant strains of the virus significantly disrupted the entire travel industry, leading to last-minute changes or cancellations.
Other factors have contributed as well, such as the airline staffing shortage in the U.S. and even rising inflation, since many consumers can’t afford to lose their investment in an expensive vacation or trip.
All of these factors raise new questions for consumers. Will I actually be able to go on this trip? What happens if it gets canceled? What options do I have to minimize my risk and protect my investment?
As they wrestle with these questions, many are turning to travel insurance to help alleviate their concerns. Travel insurance is a specialized offering that covers any unexpected or undesirable losses that may occur during travel, and it’s now becoming big business. According to recent research, the global travel insurance market was valued at $14.2 billion in 2021 and is expected to grow to nearly $124.8 billion by 2031–a CAGR of approximately 24.7%.
Traditional Pricing Approaches Come Up Short
Yet many insurance carriers simply aren’t ready to capitalize on this growing opportunity.
Why is this? A closer look shows that many, if not most, insurance companies still face real challenges when it comes to pricing travel insurance products and add-on offers. It’s a delicate balancing act: How can they price travel insurance premiums in order to meet consumers’ demand and win the business, but do so in a way to maximize profitability and cover any losses?
The fact is that many insurance companies still lack the modern insurance pricing technology they need to model prices, personalize offers, and present it to consumers in real time. These are the experiences most consumers expect from any company they do business with. So insurance carriers now face new pressures to move away from purely transactional offers and interact with customers in the way they prefer.
Yet bringing this vision to life can be difficult, if not impossible, if insurance companies still rely on outdated, legacy technology that presents real challenges, both for internal efficiencies as well as for desired results in the market. If insurers still use spreadsheets, manual data entry, or even disparate third-party systems, chances are good that they face the following obstacles related to pricing:
Slower speed to market: In some cases, it may take insurance carriers five to six months (if not longer) to implement significant changes to pricing models. This is clearly far too slow when it comes to developing competitive travel insurance offers and deploying them into the market.
Lost productivity and excessive errors: Too many manual processes can become a nightmare for internal workflows and overall efficiency. Not only are manual processes extremely time-consuming, but they can often lead to errors that either require more time to address or cause real pricing issues.
Too many handoffs: We’ve seen the case where some insurers use many different pricing and rating engines–as many as seven for one insurer– as well as specialized third-party systems related to data management or analytics. Attempting to work in so many silos inevitably means there are too many handoffs when updating pricing models–too many opportunities for something to go wrong.
Lack of personalization: Many insurers don’t have the data or the means to truly personalize their insurance offers. This includes everything from connecting with customers in their preferred channel to offering intelligent travel insurance add-ons that are customized for their trip. Consumers now demand these types of experiences–and are increasingly willing to take their business to insurers who can provide them.
Guesswork related to segmentation and profitability: Legacy technology may not be able to help insurers run advanced models and use AI- or ML-driven insights to understand their best consumer segments and how to maximize profitability. This is now critical in understanding ideal customers, creating the right offers and prices to win their business, and retain their business.
If insurance carriers are looking to win more travel insurance business, they need to overcome these challenges with more modern insurance technology.
The Right Technology for Travel Insurance
With more agile, composable, and intelligent solutions, insurers can innovate all aspects of their operations and provide better travel insurance options.
The right technology can now help any carrier create more dynamic pricing backed by data science, analytical modeling, and AI-driven capabilities. It all adds up to real advantages for insurers looking to create the right price at the right time: faster, more advanced modeling increases pricing efficacy and results while accelerating speed to market.
These modern solutions also help insurers deliver highly personalized consumer experiences by enabling individualized and innovative new insurance offerings. For example, while most of us are probably familiar with trip cancellation coverage, insurers can be more creative with additional travel insurance options, such as cancellation policies for a ski trip if there’s not enough snow.
Using AI-driven insights and powerful data analytics in new ways, insurers can improve their ability to proactively engage with consumers to develop much more contextually relevant travel insurance offers–leading to new upsell opportunities, better customer experiences, lower turnover, and higher lifetime value.
As exciting as the World Cup was, it’s just one indicator that travel insurance will continue to grow in popularity. In turn, increased adoption of travel insurance will lead to new opportunities for insurers who can overcome challenges posed by legacy technology and adopt innovative new solutions.