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Travel Insurance - UK - February 2009

The travel insurance market is set to undergo a challenging period in 2009, as consumers cut back on their spending. Holiday spend will undoubtedly come under pressure – but the annual holiday is so ingrained in the British psyche that few will willingly give it up. Since the majority of people wouldn’t even consider going abroad without having travel insurance, then providers look well placed to weather the storm. Annual policies may suffer, as people take fewer short breaks this year and return to the traditional ‘two weeks in the sun’, and as a result trade down to single-trip policies. However, providers may also be able to capitalise on a trend for travel to destinations outside the eurozone, prompted by the falling value of the pound.

Changing consumer demand isn’t the only factor at play, however. The big change, and challenge for the industry this year, is the new FSA regulatory regime, which may prompt some smaller travel firms to stop selling insurance, as well as encouraging more consumers to source cover independently. This, as well as the rise of the aggregators, will continue to put premium levels under pressure.

This report looks at the current and future challenges in the market and the size of the market and its forecast growth, for both single-trip and annual policies. Competitor products like the EHIC and packaged current accounts that include travel insurance are considered, as well as an overview of the key strengths and weaknesses in the market. Market shares are examined and the key players in the industry, as well as recent developments that have taken place, are summarised. Finally, after an analysis of different distribution channels in the market, The Consumer sections looks at key findings from our own consumer research and what these mean for providers.

Key report themes:

  • Consumers cutting back on holiday expenditure.

  • More people visiting destinations outside of the eurozone.

  • FSA regulation now extended to connected travel insurance.

  • The shift towards consumers arranging their cover independently.

  • Aggregators driving intense price competition in the market.

  • The shift towards annual travel insurance, which may change this year.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Offering superior value when times are tight
            • Adapting to changing holiday trends
              • Trust is crucial in the current environment
                • Arranging cover direct to save money
                • Market in Brief

                  • Overseas holidays expected to decline in the current climate…
                    • Figure 1: Domestic vs overseas holidays, 2003-08
                  • …which clearly threatens travel insurance companies
                    • Few competing products exist
                      • The market suffered in 2008
                        • Figure 2: Volume and value of UK travel insurance policies written, by type, 2004-08
                      • AXA leads the field
                        • Figure 3: Top ten travel insurance providers (parent companies), by GWP, 2007
                      • Advertising expenditure has been increasing
                        • More people are using aggregators to arrange cover
                          • Figure 4: Methods of arranging travel insurance, 2006-08
                        • ABs are more likely to take out an annual policy
                          • Figure 5: Travel insurance ownership, by type of policy, December 2008
                      • Internal Market Environment

                        • Key points
                          • Big regulatory changes come into effect in 2009
                            • Growth in the number of overseas holidays is good for providers
                              • Figure 6: Domestic vs overseas holidays, 2003-08
                            • Other trends that may affect demand for travel insurance
                              • Important considerations for providers in 2009
                                • The new threats of terrorism and airlines going bust
                                  • Exaggerated travel insurance claims force premiums up
                                    • Aggregators encourage price competition
                                      • Inadequate cover and accusations of mis-selling?
                                      • Broader Market Environment

                                        • Key points
                                          • People are concerned about the economy…
                                            • Figure 7: Changing consumer concerns, 2008-09
                                          • …prompting consumers to cut back…
                                            • Figure 8: Spending cutbacks over the past six months, December 2008
                                          • …which is not good news for travel insurance providers
                                            • The falling pound may put people off taking holidays abroad
                                              • Figure 9: Spot exchange rates, US dollar and euro into £ Sterling, Jan 2007-Dec 2008
                                            • Over the long term, wealth and affluence have grown…
                                              • Figure 10: UK adult population splits, by socio-economic group, 2002-12
                                            • …but changing population dynamics may affect insurers
                                              • Figure 11: UK population splits, by lifestage, 2002-12
                                          • Competitive Context

                                            • Key points
                                              • The European Health Insurance Card
                                                • Packaged current accounts that include travel insurance
                                                  • Figure 12: Appeal of added-value benfits included in packaged current accounts, April 2008
                                                • Taking a risk
                                                • Strengths and Weaknesses in the Market

                                                    • Market strengths
                                                      • Seen as a must-have by many people
                                                        • Cover is relatively inexpensive
                                                          • An annual holiday has become the norm for most
                                                            • Increased risks while travelling abroad may boost uptake
                                                              • Market weaknesses
                                                                • The perception that insurers do not pay out
                                                                  • Decline in overseas holiday-taking
                                                                    • People may skip travel insurance to save money
                                                                      • More people sourcing cover themselves
                                                                      • Who’s Innovating?

                                                                        • Key points
                                                                          • How about offering free insurance?
                                                                            • Additional online tools for customers
                                                                              • Adapting to changes in the market
                                                                                • Promoting strength and stability
                                                                                  • Giving consumers more choice and flexibility
                                                                                  • Trade Perspective

                                                                                    • The impact of the economic downturn
                                                                                      • The weak pound may be more of an issue
                                                                                        • Boosting uptake of travel insurance
                                                                                          • Rising claim costs
                                                                                            • FSA regulation
                                                                                              • Other challenges in the market
                                                                                              • Market Size and Forecast

                                                                                                • Key points
                                                                                                  • Travel insurance accounts for a small part of the market
                                                                                                    • Figure 13: Share of total premium income (UK business), by general insurance sector, 2007
                                                                                                  • The number of policies written will decline slightly in 2008
                                                                                                    • Figure 14: Volume and value of UK travel insurance policies written, by type, 2004-08
                                                                                                  • Travel insurance claims continue to increase
                                                                                                    • Figure 15: Travel insurance claims incurred, by volume and value, 2004-07
                                                                                                  • Market forecast
                                                                                                    • 2009 is going to be a tough year for providers…
                                                                                                      • Figure 16: Forecast volume and value of UK travel insurance policies written, by type, 2004-13
                                                                                                    • …but the market should have made a full recovery by 2011
                                                                                                      • Factors used in the forecast
                                                                                                      • Market Share

                                                                                                        • Key points
                                                                                                          • AXA is the market leader in travel insurance…
                                                                                                            • Figure 17: Top ten travel insurance providers (parent companies), by GWP, 2007
                                                                                                          • …having increased its revenue significantly in 2007
                                                                                                          • Companies and Products

                                                                                                            • Recent developments in the market
                                                                                                              • AXA
                                                                                                                • Aviva (Norwich Union)
                                                                                                                  • RBS Insurance
                                                                                                                    • Fortis
                                                                                                                      • AIG
                                                                                                                      • Brand Elements

                                                                                                                          • Brand map
                                                                                                                            • Figure 18: Attitudes and usage of various travel insurance brands, January 2009
                                                                                                                          • Columbus Direct
                                                                                                                            • What the brand is trying to achieve
                                                                                                                              • What the consumer thinks
                                                                                                                                • Figure 19: Attitudes towards the Columbus Direct brand, January 2009
                                                                                                                              • Direct Line
                                                                                                                                • What the brand is trying to achieve
                                                                                                                                  • What the consumer thinks
                                                                                                                                    • Figure 20: Attitudes towards the Direct Line brand, January 2009
                                                                                                                                  • Norwich Union
                                                                                                                                    • What the brand is trying to achieve
                                                                                                                                      • What the consumer thinks
                                                                                                                                        • Figure 21: Attitudes towards the Norwich Union brand, January 2009
                                                                                                                                      • Post Office
                                                                                                                                        • What the brand is trying to achieve
                                                                                                                                          • What the consumer thinks
                                                                                                                                            • Figure 22: Attitudes towards the Post Office brand, January 2009
                                                                                                                                          • Thomas Cook
                                                                                                                                            • What the brand is trying to achieve
                                                                                                                                              • What the consumer thinks
                                                                                                                                                • Figure 23: Attitudes towards the Thomas Cook brand, January 2009
                                                                                                                                              • Brand Qualities of travel insurance brands
                                                                                                                                                • The Post Office is very endearing
                                                                                                                                                  • Figure 24: Personality of various travel insurance brands, January 2009
                                                                                                                                                • Travel agents are not people’s first choice for travel insurance
                                                                                                                                                  • Figure 25: Commitment to various travel insurance brands, January 2009
                                                                                                                                                • A lot of people have never heard of Columbus Direct…
                                                                                                                                                  • Figure 26: Consumer usage of various travel insurance brands, January 2009
                                                                                                                                                • …but might consider them if they knew more about them
                                                                                                                                                  • Figure 27: Intentions towards various travel insurance brands, January 2009
                                                                                                                                                • The Post Office is thought to be gaining ground
                                                                                                                                                  • Figure 28: Momentum of various travel insurance brands, January 2009
                                                                                                                                                • First Choice could improve on customer service
                                                                                                                                                  • Figure 29: Satisfaction with various travel insurance brands, January 2009
                                                                                                                                                • Halifax scores lowest for stand-alone cover
                                                                                                                                                  • Figure 30: Motivation towards various travel insurance brands, January 2009
                                                                                                                                                • Round up
                                                                                                                                                • Brand Communication and Promotion

                                                                                                                                                  • Key points
                                                                                                                                                    • Travel insurance adspend is down slightly in 2007/08
                                                                                                                                                      • Figure 31: Top ten categories of general insurance advertising, 2004/05-2007/08
                                                                                                                                                    • Columbus Direct has really stepped up its advertising
                                                                                                                                                      • Figure 32: Top 20 companies advertising travel insurance, 2004/05-2007/08
                                                                                                                                                    • Direct mail is the most popular type of media used
                                                                                                                                                      • Figure 33: Media types used for advertsing travel insurance, 2004/05-2007/08
                                                                                                                                                    • A seasonal product with advertising peaking in summer
                                                                                                                                                      • Figure 34: Advertising expenditure on travel insurance, by month, 2007
                                                                                                                                                  • Channels to Market

                                                                                                                                                    • Key points
                                                                                                                                                      • More people using aggregators to source travel insurance
                                                                                                                                                        • Figure 35: Methods of arranging travel insurance, 2006-08
                                                                                                                                                      • Cover arranged through banks has also increased
                                                                                                                                                        • Convenience and price are merging
                                                                                                                                                        • The Consumer – Travel Trends and Product Ownership

                                                                                                                                                          • Key points
                                                                                                                                                            • Half of consumers have not been abroad in the last year
                                                                                                                                                                • Figure 36: Leisure travel trends, by destination, December 2008
                                                                                                                                                              • Few holidaymakers risk going abroad without travel insurance
                                                                                                                                                                • Figure 37: Travel insurance ownership, by type of policy, December 2008
                                                                                                                                                              • Single-trip policies are still the most popular
                                                                                                                                                                • Men and young people are more likely to forego cover
                                                                                                                                                                  • Figure 38: Travel insurance ownership, by gender, age, marital status, lifestage and household tenure, December 2008
                                                                                                                                                                • Married people more likely to have an annual policy
                                                                                                                                                                  • ABs are most likely to take out an annual policy
                                                                                                                                                                    • Figure 39: Travel insurance ownership, by socio-economic group, December 2008
                                                                                                                                                                  • Most people arrange their travel insurance direct with a provider…
                                                                                                                                                                      • Figure 40: Methods of arranging travel insurance, December 2008
                                                                                                                                                                    • …though price comparison websites are also very popular
                                                                                                                                                                      • BMRB data suggest that the telephone still rules
                                                                                                                                                                        • Figure 41: Methods of arranging travel insurance, June 2008
                                                                                                                                                                      • Price comparison sites are not for the older consumer
                                                                                                                                                                        • Figure 42: Methods of arranging travel insurance, by demographic sub-group, December 2008
                                                                                                                                                                      • Apathetic C2DEs more likely to arrange cover through a travel agent
                                                                                                                                                                        • Annual policies are more suited to direct sales
                                                                                                                                                                          • Figure 43: Travel insurance ownership, by method of arranging cover, December 2008
                                                                                                                                                                        • Banks could do better in the single-trip market
                                                                                                                                                                        • The Consumer – Attitudes towards Travel Insurance

                                                                                                                                                                          • Key points
                                                                                                                                                                            • Travel insurance – the product that sells itself
                                                                                                                                                                                • Figure 44: Attitudes towards travel insurance, December 2008
                                                                                                                                                                              • Travel insurance is most highly valued for medical cover
                                                                                                                                                                                • Older people are more likely to take out travel insurance
                                                                                                                                                                                  • Figure 45: Attitudes towards travel insurance, by age, December 2008
                                                                                                                                                                                • ABs are likely to take out cover…but are highly price-sensitive
                                                                                                                                                                                  • Figure 46: Attitudes towards travel insurance, by gender, age, socio-economic group, marital status and region, December 2008
                                                                                                                                                                                • People with cover already in place are less concerned by price
                                                                                                                                                                                  • Figure 47: Attitudes towards travel insurance, by type of policy purchased, December 2008
                                                                                                                                                                                • Existing policyholders may be travel insurance advocates
                                                                                                                                                                                  • Figure 48: Type of policy purchased, by attitudes towards travel insurance, December 2008
                                                                                                                                                                                • Single-trip policyholders less likely to shop around
                                                                                                                                                                                  • Savvy consumers buy online and use price comparison sites
                                                                                                                                                                                    • Figure 49: Attitudes towards travel insurance, by channel of arrangement, December 2008
                                                                                                                                                                                  • Many still don’t think it’s worth shopping around for travel insurance
                                                                                                                                                                                    • Figure 50: Attitudes towards travel insurance, by attitudes towards travel insurance, December 2008
                                                                                                                                                                                • The Consumer – Further Analysis

                                                                                                                                                                                  • Key points
                                                                                                                                                                                    • People visiting friends or family less likely to take out insurance
                                                                                                                                                                                      • Figure 51: Travel insurance ownership, by destination visited, January 2009
                                                                                                                                                                                    • Long-haul holidaymakers more likely to take out an annual policy
                                                                                                                                                                                      • Frequent travellers more likely to take out an annual policy
                                                                                                                                                                                        • Figure 52: Travel insurance ownership, by frequency and duration of overseas trips, January 2009
                                                                                                                                                                                      • Travel insurance target groups
                                                                                                                                                                                          • Figure 53: Travel insurance target groups, January 2009
                                                                                                                                                                                        • Group 1: No Need (Out of Market)
                                                                                                                                                                                          • Group 2: Apathetic Risk Takers
                                                                                                                                                                                            • Group 3: Price Sensitive
                                                                                                                                                                                              • Group 4: Strong advocates
                                                                                                                                                                                                • Strong Advocates are the ideal customer
                                                                                                                                                                                                  • Figure 54: Travel insurance target groups, by attitudes towards travel insurance, January 2009
                                                                                                                                                                                                • Price Sensitive consumers are likely to use aggregators
                                                                                                                                                                                                  • Figure 55: Travel insurance target groups, by method of arranging cover, January 2009
                                                                                                                                                                                                • Price Sensitive consumers are more frequent travellers
                                                                                                                                                                                                  • Figure 56: Travel insurance target groups, by frequency and duration of overseas trips, January 2009
                                                                                                                                                                                                • Apathetic Risk Takers are most likely to forego cover
                                                                                                                                                                                                  • Figure 57: Travel insurance target groups, by type of policy purchased, January 2009
                                                                                                                                                                                              • Appendix

                                                                                                                                                                                                  • Figure 58: Travel insurance ownership, by demographic sub-group, December 2008
                                                                                                                                                                                                  • Figure 59: Methods of arranging travel insurance, by demographic sub-group, December 2008, (Table 1 of 2)
                                                                                                                                                                                                  • Figure 60: Methods of arranging travel insurance, by demographic sub-group, December 2008, (Table 2 of 2)
                                                                                                                                                                                                  • Figure 61: Attitudes towards travel insurance, by demographic sub-group, December 2008, (Table 1 of 2)
                                                                                                                                                                                                  • Figure 62: Attitudes towards travel insurance, by demographic sub-group, December 2008, (Table 2 of 2)
                                                                                                                                                                                                  • Figure 63: Travel insurance target groups, by sub-demographics, January 2009

                                                                                                                                                                                              Companies Covered

                                                                                                                                                                                              • AIG Europe, SA
                                                                                                                                                                                              • AIG Group (American International Group Inc)
                                                                                                                                                                                              • Air Travel Organisers' Licensing (ATOL)
                                                                                                                                                                                              • Alliance & Leicester
                                                                                                                                                                                              • Alliance Boots
                                                                                                                                                                                              • Allianz Cornhill Insurance plc
                                                                                                                                                                                              • Allianz Group
                                                                                                                                                                                              • American Express UK
                                                                                                                                                                                              • Argos
                                                                                                                                                                                              • Asda Group Ltd
                                                                                                                                                                                              • Association of British Insurers
                                                                                                                                                                                              • Association of British Travel Agents (The)
                                                                                                                                                                                              • Aviva Plc
                                                                                                                                                                                              • AXA UK plc
                                                                                                                                                                                              • Bank of England
                                                                                                                                                                                              • Barclays Bank plc
                                                                                                                                                                                              • BC Partners Ltd
                                                                                                                                                                                              • BNP Paribas
                                                                                                                                                                                              • British Airways Plc
                                                                                                                                                                                              • British Market Research Bureau (BMRB)
                                                                                                                                                                                              • BUPA
                                                                                                                                                                                              • CGU
                                                                                                                                                                                              • Citizens Advice Bureau
                                                                                                                                                                                              • Civil Aviation Authority
                                                                                                                                                                                              • Co-operative Group
                                                                                                                                                                                              • Columbus Direct
                                                                                                                                                                                              • Council of Mortgage Lenders
                                                                                                                                                                                              • DAS Legal Expenses
                                                                                                                                                                                              • Debenhams Total (GTV)
                                                                                                                                                                                              • Devitt Insurance Services
                                                                                                                                                                                              • Direct Holidays
                                                                                                                                                                                              • Direct Line Group Limited
                                                                                                                                                                                              • Drakefield Insurance Services Limited
                                                                                                                                                                                              • Esure
                                                                                                                                                                                              • Europ Assistance UK
                                                                                                                                                                                              • Financial Services Authority (The)
                                                                                                                                                                                              • FirstAssist Group Limited
                                                                                                                                                                                              • FlyBE
                                                                                                                                                                                              • Fortis Insurance Limited
                                                                                                                                                                                              • Gfk NOP
                                                                                                                                                                                              • Goldfish Bank Limited
                                                                                                                                                                                              • Great Lakes Reinsurance
                                                                                                                                                                                              • Groupama Insurances
                                                                                                                                                                                              • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                              • InsureAndGo
                                                                                                                                                                                              • Marks & Spencer
                                                                                                                                                                                              • Mondial Assistance Group
                                                                                                                                                                                              • Munich Re Group
                                                                                                                                                                                              • Neckermann
                                                                                                                                                                                              • Nielsen Media Research, Inc.
                                                                                                                                                                                              • Norwich Union
                                                                                                                                                                                              • Office for National Statistics
                                                                                                                                                                                              • Post Office Limited
                                                                                                                                                                                              • Royal Bank of Scotland Group plc
                                                                                                                                                                                              • Silverjet Aviation Limited
                                                                                                                                                                                              • Somerfield
                                                                                                                                                                                              • St Andrew's Group
                                                                                                                                                                                              • Tesco Plc
                                                                                                                                                                                              • Thomas Cook Group PLC
                                                                                                                                                                                              • Travelodge
                                                                                                                                                                                              • UKI Partnerships
                                                                                                                                                                                              • Waitrose
                                                                                                                                                                                              • Wm Morrison Supermarkets
                                                                                                                                                                                              • Woolworths Group plc

                                                                                                                                                                                              Travel Insurance - UK - February 2009

                                                                                                                                                                                              £1,995.00 (Excl.Tax)