8 September 2022
Why isn’t there more ‘insurtech’ in travel insurance?
‘Insurtech’ is a broad term. It can refer to companies that use apps for selling policies, processing claims, or providing online consultations. It can also refer to the large superstructure of APIs (application programming interfaces), cloud-based applications and data-driven and AI tools that providers use for pricing insurance.
The insurtech sector is currently booming. In 2020 insurtech startups received over $7 billion in funding. The first half of 2021 alone surpassed this figure.
The geographical centre of this boom is the USA. The UK, however, is not far behind, and is leading Europe, thanks to a vibrant financial ecosystem in London and the presence of large amounts of venture capital.
Why is the travel sector weaker on tech?
The roll-out of insurtech solutions has not been equal across insurance sectors. As we previously reported, pet insurance is a key sector for the insurtech boom in the UK. Travel insurance is at the opposite end of the spectrum, with insurtech-based firms all but absent. In spite of regularly surveying the entire UK travel insurance market, our ratings are yet to include an overtly insurtech travel insurance brand.
What are the reasons behind this discrepancy?
The first is a lack of investment. Travel insurance is a sector with famously low profit margins. While some analysts think profits could be improved through insurtech solutions, it is harder to find the money for investment in a sector with such tight margins.
Second, travel insurers are having a difficult time at the moment, with the twin shocks of the pandemic and the cost of living crisis. Not only are there fewer holidaymakers, but up to 40% of them may try to balance their travel budget by skipping insurance. This further exacerbates the earlier problem.
Third, the group most likely to want customer-facing digital services – younger customers – are also the group most likely to forgo purchasing travel insurance, both because of price and, potentially, because the lack of digitally-sophisticated providers puts them off. This could create a negative feedback loop, meaning the potential market for insurtech in travel remains untapped.
What do tech solutions look like in travel insurance?
Tech solutions in travel insurance usually serve one of two purposes:
- Improving the technical infrastructure of the insurer
- Improving the way that customers interact with insurers
On the technical side, insurers might do away with pre-made plans and purchase or collect consumer data to then sell them bespoke products instead.
They might also integrate the travel insurance purchase journey into other purchase journeys, such as booking accommodation or buying flights.
Travel insurers can also use AI to digitise their claims processing mechanisms. For example, they might decide to pay all claims under a certain threshold, saving the time and resources usually spent on processing small claims and freeing up time for more complex cases.
New technologies can also allow for the introduction of various ‘parametric’ policy options, which cut costs by eliminating the claims process altogether. By connecting to a service that provides live information on flight cancellations or baggage delays, for example, a travel insurer can immediately reimburse customers in certain situations.
On the second use of insurtech – improving customer experience – there is great potential in the travel insurance sector. Policies could be automatically activated when customers go abroad, for example, meaning consumers don’t need to pick either annual or single-trip policies.
Providers can invest in better apps and websites too. They can provide live status updates, and a more pleasant user experience when purchasing policies or handling claims. There are also examples of insurance apps that can be used for online GP consultations or booking flights and accommodation.
What are some examples of insurtech brands in travel?
In the UK, the earliest examples of insurtech in travel come in the form of parametric policies. JustTravelCover.com recently introduced a ‘Smart Luggage’ add-on which provides automatic reimbursements if the customer’s baggage is lost.
In the USA, a wider range of insurtech services are taking hold. Insured Nomads offers tailored travel insurance policies to long-term travelers and expats, complete with online on-demand medical consultations. Firms on the B2B side include CoverGenius, who provides technical services for insurtech solutions.
Regular providers are also joining the tech scene by providing API endpoints that allow other websites to request travel insurance quotes from the central system, enabling them to quote customers completing related product journeys.
The age of insurtech is coming. While travel insurance is lagging at the moment, American insurers have shown what is possible.
The cost of living crunch, however, both discourages travel and encourages customers to cut costs by not taking out insurance. This tightens the already low profit margins in travel insurance and so prevents greater investment in new technologies.