A languorous increase in disposable income particularly in developing countries during the current downward draft because of the COVID 19 pandemic has potentially influenced the avoidance of travel insurance purchase. Also, the dearth of consumer awareness about the practical details of the policies appropriate to one’s individual needs is certain challenges that need ironing out to effectuate the anticipated growth of the global travel insurance market. Nevertheless, the growing concerns over the likelihood of losses pertaining to cancellations of flights and rescheduling of flights are anticipated to lead to an increase in travel insurance purchase. While this can be a surmised the main market drivers and challenges it is important to gloss over the market conditions. In order to gain a perspective, the comprehension of several factors that have stemmed from the progression of the global economy, trade liberalization, among others is pertinent.
International Tourist Arrivals
By Type of Travel, the Leisure Segment Is Anticipated to Witness Significant Growth During the Forecast Period
According to UNWTO (The World Tourism Organization) as of January 2020, the international tourist arrivals as far as global overnight visitors increased by 4% in 2019 attaining 1.5 billion, approx. 54 million more than that of the previous year. The same year also marked a robust growth albeit Europe registering slower growth. 2019 also featured several incertitudes that revolved around Brexit, the collapse of Thomas Cook and of several low-cost airlines trade and geopolitical tensions, that impacted the global tourism market. Despite the aforementioned, the international tourist arrivals (+3.8%) overtook the global economy (+3.0%). Further, an increase in arrivals was registered by all the regions. To this end, it is pertinent to note the growth was led by the Middle East that registered a growth of 8%. It was followed by the APAC which registered a growth of 5%. The regions of Europe and Africa both registered a growth by 4% that reportedly increased in tandem with the global average, whereas the Americas registered a growth by 2%.
Concerning sub-regions, the growth was led by North America that registered a growth of 9%, followed by South-East Asia and South Asia both registering growth by 8%. Moreover, the Caribbean and the Southern as well as Meditation Europe registered a growth of 5%. Concerning the major source markets, the most robust growth was reported by France among the top 10 markets as far as the international tourism expenditure is concerned. Also, the international air passenger traffic that was measured in RPK (revenue passenger kilometers) experienced a similar trend to that of international arrivals that registered an increase of 4% through November 2019. Considering the impact of COVID 19, there is a weak consumer confidence despite repressed demand for leisure travel and visiting relatives and friends which has brought about a downward draft in international travel that can influence the growth prospects of the global travel insurance market. Nevertheless, the announcement of vaccine roll-out is anticipated to increase consumer confidence. Further, in certain large markets particularly that of China and Russia the domestic air travel demand has reverted to pre-COVID levels due to a surge in domestic air tourism.
Air Transport, Registered Carrier Departures Worldwide
Source: WORLD BANK
Now considering RPK, 2019 was the year that registered the weakest growth since 2009 registering an increase of 4.2%. However, it significantly overtook the global GDP (gross domestic product) which is considered a noteworthy feat since the growth of transportation is typically subsequent to the global economy. The year also marked an increase in airline passenger capacity registering a growth of 3.4%. This led to an increase in load factor by 0.7% to an all-time high of 82.6%. Regionally, leading all regions, Africa registered a robust growth rate of 4.9% and followed by the APAC registering a growth rate of 4.8%. Whereas Latin America and the Middle East experienced both experienced growth rates by 4.2% and from a subregional perspective, North America registered a growth rate of 4.1%.
COVID 19 Has Emerged as a Boon to the Global Travel Insurance Market
While essentially a bane to international air travel, due to the advent of COVID 19 several countries have made travel insurance mandatory positively impacting the medical insurance segment that has can potentially drive the growth of the global travel insurance market. Further airlines around the world are making an effort to stimulate the demand for air travel which was estimated to fall 55% in 2020 compared to 2019 according to (IATA) International Air Transport Association. For instance, in October 2020, it was reported that the Ethiopian Airlines Group will cover the medical insurance in partnership with AXA Partners and Awash Insurance Company. Etihad Airways had announced in September 2020 that it would cover the medical cost (of up to 150,000 euros) and quarantine costs (of up to 100 euros) for 14 days in case passengers contract COVID 19 after traveling on one of its flights. This facility is included in the airfare of tickets till the year-end and is being offered in partnership with insurance firm AXA (EPA: CS). In August 2020, Virgin Atlantic announced the introduction of Virgin Atlantic COVID-19 Cover that would apply to all existing and new bookings from 24 August 2020 till 31 March 2021.
This policy is fulfilled by Allianz Assistance and reportedly covers that offers comprehensive cover encompassing emergency medical costs, associated expenses such as transport and accommodation, and repatriation up to £500,000 for passengers in case they contract the virus while traveling. It also covers costs pertaining to boarding denial at either departure or at the destination and quarantine of up to £3,000. Earlier in July 2020, it was reported that the low-cost carrier SpiceJet Limited (NSE: SPICEJET) had partnered with Go Digit General Insurance through its Digit Illness Group Insurance Policy to offer insurance cover for COVID 19 hospitalization comprising all pre-and post-hospitalization expenses for 30 and 60 days, respectively. This facility included are tests, medication, and consultations upon testing positive for Covid-19. Further passengers are given the option to opt for insurance coverage that varies between Rs 50,000 and Rs 3,00,000 at a premium for as low as Rs 443 to Rs 1,564 a year (including GST).