Interview: COVID-19 Pandemic: the impact on Travel Insurance Industry

27 Apr

COVID-19 Pandemic:
the impact on Travel Insurance Industry

What is the impact of COVID-19 pandemic on Travel Insurance Industry and which practical steps should we take already now to minimize it? 

Interview with an industry expert and Uniglobal’s Travel Insurance Forum keynote speaker Khalid Sohail | Head Accident and Sickness | Zurich Insurance Canada

Q: How do you think COVID-19 pandemic will affect future travel globally?

The COVID-19 outbreak has brought our world to a standstill, with unparalleled and unforeseen impact in our lives, our economies, our societies and our livelihoods, and there are growing risks of a global recession and a massive loss of jobs.

Considering the incomparable and fast-evolving nature of crisis, it is extremely challenging to estimate the impact of COVID-19 on air travel and tourism. Are we at the peak, plateau, is there a repeat wave, how far away is the vaccine – no one knows? But based on developments so far (quarantine measures, travel bans & border closures globally, and the patterns of previous similar crises (2003 SARS and 2009 global economic crisis) some estimation of impact on air transportation and tourism has been attempted by IATA and UNWTO respectively.  

“UNWTO estimates – international tourist arrivals could decline by 20% to 30% in 2020”

This would translate into a loss of 300 to 450 US$ billion in international tourism receipts (exports) – almost one third of the US$ 1.5 trillion generated globally in the worst-case scenario.

The World Travel And Tourism Council (WTTC) have warned that Covid-19 could cut 50 million jobs world wide in travel and tourism industry. Once the outbreak is over, it could take 10 months to a year for the industry to start recovering.  

In terms of behavioral changes in international travel, medical screening at the destination airport may become a new normal practice. Dubai airport has already implemented a quick COVID-19 tests for arriving passengers. Other medical screenings could include temperature detecting scanners etc. This would mean extended travel time and more waiting time at terminal buildings. 

Due this very short haul travel may move from plane to train or even cars, but we must remember, that medical screening will be at all border checkpoints: be it airport, roads, ports or train stations.

Q: How coronavirus pandemic has changed travel insurance thus far? What trends we can observe on market already now?

In terms of market size of travel insurance, there will be two contradictory trends. 

Market will shrink due to reduced numbers of passengers as illustrated by IATA for air transport and UNWTO for tourist estimates above.

However, there will be substantial increase in penetration of travel insurance. Coverage such as medical emergency, trip cancellation, trip interruption, under endemic and pandemic conditions, will become absolute essentials. The offtake of Corporate Accident and Business Travel product is likely to increase significantly.

“Global travelers may be puzzled over how the ongoing COVID-19 pandemic may influence their travel insurance policies in terms of coverage. The following are expected”.

First, the travel insurance products are certain to become more expensive at least in the immediate future. This is due to following reasons: reduced capacity, as certain insurer will restrict or even avoid exposure in this line of business; increased penetration, as explained above; increase in internal cost of insurance and assistance companies, and possibility of higher loss.

Secondly, the insurer will exclude, from their policy terms, certain coverage in the event of declaration of endemic and pandemic.

Some may also extend the exclusion to trip cancellation / interruption by incorporating exclusion in view of travel advisory by the respective governments.

If the government restricts all non-essential travel to and from the country, then any trip cancellation / trip interruption benefits may not be covered. Such approaches are expected to be more prevalent in infant, and not so mature markets, where the underwriting is conservative, product experience is low, distribution is more a push, and penetration is much lower.

Mature markets, where underwriting is aggressive, product experience is significantly high, distribution is more a pull, and penetration is much higher – will offer products that include endemic and pandemic conditions. Such markets will also see some new coverages, such as benefit to cover return travel, if destination airport/ passport controls medical screening fail and the insured is not allowed to enter the destination country and is required to travel back to his nationality / residence country.

Similarly, the trip Cancellation / interruption cover may get broadened, if a product is not offering Cancellation Due To Any Reasons. Such products, at present, have reasons for Trip Cancellation, such as death of the passengers, co-passengers and their family member, or sickness leading to hospitalization of passengers, co-passengers and their family member. One new reason could be added: in case the passengers / co-passengers develop sudden flu-like symptoms or fever – trip cancellation will be covered.

“Just as the medical fraternity are frontlines fighting the pandemic medically, for Travel Insurance Industry this role was taken over by the employees of Assistance Companies”

The calls and e-mails were pouring into assistance offices, not in hundreds but thousands each day. The assistance specialists were struggling to help and support their customers find a doctor, hospital bed, ICU, evacuation flights and other commercial travel arrangements, funeral and repatriation homes to handle the deceased. The assistance agents deserve appreciation.

Q: What are the implications for the travel industry ahead?

Today, tourism is a huge global business that accounts for 10.4% of global Gross Domestic Product (GDP) and 10% of global employment.

Nothing seems to slow its growth, as year-over-year increases outpace the economy. The United Nations World Tourism Organization is predicting further growth of three per cent to four per cent in international tourist arrivals for 2020, with international departures worldwide particularly strong in the first quarter of this year.

But that was before Covid-19 hit China and then very rapidly started spreading to the rest of the world. World Health Organization declaring the coronavirus a public health emergency, a pandemic, damaging economic impact on the sector.

As stated above According to IATA, annual loss is expected to be $113-252 billion for the airline industry. What that means to the industry’s annual revenue projection is that it went from a 4% 

increase to 13-30% YoY decrease (vs $838 billion in 2019) Total profit in 2019 was $26 billion or 3.1% of total revenue, which suggests even IATA’s “best-case scenario” for 2020 would not be bearable by airlines.

In terms of tours and associated activity, the whole sector is valued at $254 billion for 2019, consisting of 1 million operators. 86% of operators generated less than $250K in sales in 2019, which implies small businesses could be hit the hardest. Based on last week’s survey, 28% of operators are at risk of closing business within the next 3 months or 46% within 6 months. Average YoY decline in bookings is about 52%, partially due to a 37% cancellation of total 2020 bookings.

In terms of hotels right now, none of the global brands are ready to give guidance. Group is the only OTA that has issued some sort of guidance. They expect lodging businesses to decline 60-65% for Q1 YoY..

Few trends that we should look forward to are 

  • Cruises will be very cheap. But it might not matter for newcomers who, will stay away
  • Cleanliness and medical screening will be addressed quite a bit
  • Hotel room rates will drop more before they come back up
  • Lower airfares and emptier planes. Business travel may spur recovery for airlines
  • At least for time being, air travelers will have more booking flexibility

Q:  What are the reactions of travel insurer? What should be the focus of travel insurance companies in the immediate present?

The individual response from different insurer depends on several factors – their being in mature or infant market, size of the portfolio and portfolio mix, covers they offer etc, etc..

Immediately in most of the countries, which are under lockdown, there are no sales of travel insurance simply because there is no travel taking place. In fact there are more refunds due to cancellation of travel policies, in view of unutilized travel days, or because insured bought Annual Travel plans, and they have now no plan to travel in near future.

“Insurer response should be carefully thought after”.

They must consider the purpose, for which travel insurance is bought. Hence the interest of the customers. They also must protect their own commercial interest, as a loss making business can neither deliver quality service, nor keep customers happy.

One area, in my view, must be focused immediately, is review of insurer service terms with assistance company, and funeral homes and repatriation entity. It must be noted that unless the insurer has these in good shape, putting them together last moment is impossible, considering how fast the crisis develops and situation on the ground changes

Q: Is there a Tech Innovation, which could aid business recovery post opening of lockdowns and borders opening?

Few Startups that has taken lead and can help corporations within the Travel and Tourism industry endure this situation.

Unfortunately, many startups will not survive the impact of Covid-19. We’re already seeing tons of layoffs and startups having to switch their full-time employees to part-time. Startups that already had a short runway before the crisis will be hit at an accelerated rate. At the same time, we’ve seen an impressive number of startups quickly pivot or develop additional solutions for Covid-19 applications in the areas of prevention, detection, disruption management, and operational efficiency, which has showcased the agility of these founders.

RubiQ is a Tel-Aviv based startup that helps airlines reduce significant overload on call centers and streamline passengers’ rebooking and refund processes. In the current situation, process automation is key.

RubiQ offers Aircules, a white label AI-powered mobile solution which keeps the passengers updated and allows them to rebook from personalized alternatives.

Bespoke is helping the Japanese government to effectively communicate with travelers in Japan in multiple languages to combat the pandemic. They do it with Bebot, one of their products, that they describe as an “AI concierge”.

With Bespoke, Japanese residents and travelers can ask the chatbot different questions about their health or the virus (such as symptoms, treatment or preventive measures).

Face++ is a Chinese company which empowers infrared cameras with computer vision technologies for rapid deployment at airports and subway stations in China, to detect and track individuals with fever. This allows staff to complete all body temperature screenings without close physical contact, thus reducing the chances of contagion.

Gartner predicts that by 2024 “organizations will lower operational costs by 30% by combining hyper-automation technologies with redesigned operational processes”. This fact, combined with the current situation, will push organizations to cut costs, and automation is one of the best ways to do that.

Paanini has developed a solution called JiffyRPA, that combines enterprise-grade RPA with intelligent data capture, advanced analytics and artificial intelligence to deliver measurable impact on productivity, efficiency and profitability for global enterprises.

JiffyRPA’s intelligent automation capabilities can convert unstructured, semi-structured and hand-written data into structured data before automating corresponding processes. This way unstructured data becomes structured making it clean and usable for automation of various related processes.

Automation Hero
Automation Hero combines Robotic Process Automation (RPA) with AI to form an intelligent process automation (IPA) platform. By automating repetitive and time-consuming tasks, Automation Hero improves productivity and drives more successful outcomes.

The platform of this San Francisco-based startup is personified by Robin, a virtual personal assistant, to create an approachable integration between AI and humans.

Sitata is another company working in disruption management. They offer a mobile-based platform that provides travelers with pre-trip health and safety advice, real-time monitoring of travel disruptions, and automated safety check-ins with real-time assistance.

With the COVID-19 outbreak, airlines are learning a lot about how to better manage trip disruptions, and startups such as Sitata can help them improve their service.