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14 December 2016 Insurance

Travel insurers face growth potential and M&A activity

Driven by strong growth of tourism, insurers see an opportunity to expand their travel insurance business and experts expect more M&A activity in this segment after Zurich agreed to buy an Australian travel insurer.

The global travel insurance market will grow at a compound annual rate of 11.6 percent from 2016-2020, according to projections by research group Technavio.

The US travel insurance market, the largest in the world, has grown at 7.1 percent per annum from 2011 through 2015, according to figures from Finacord, a market research firm.

The insurance industry has benefited strongly from the increase in travel in the recent past, Zurich said in a Dec. 12 press release.

The proportion of US travellers purchasing insurance continues to rise, with uptake moving from 8-10 percent pre 9/11 to over 45 percent today, according to the press release.

Travel insurance is an attractive market, said Nel Mooy, head of travel at AXA Insurance. She noted however, that to succeed in this segment a carrier needs scale. As in other insurance segments, digitisation is transforming the travel insurance market, but this requires significant investments to modernise systems, processes and products, and larger companies are better positioned to shoulder these costs. For organisations which have the necessary capabilities, “there is an opportunity to do well,” said Mooy.

Zurich is among a group of the larger insurers that are looking to expand their presence in the travel insurance market. The Swiss carrier has entered an agreement to acquire Australia-based Cover-More, a provider of travel insurance and assistance solutions, to expand its travel insurance business. Under the transaction, Zurich will acquire 100 percent of the issued share capital of Cover-More. The agreement values the company at approximately $554 million.

Travel insurance is a fast-growing industry, providing a high-margin, capital-light product with low volatility, Zurich said in a Dec. 12 Zurich statement.

The acquisition “will further strengthen our position and expertise in the global travel insurance market and support our ambition to expand our distribution partnerships,” said Jack Howell, Zurich’s CEO of Asia Pacific.

“Through Cover-More’s technology platform, Zurich will be able to attract and serve the needs of retail customers in the growing travel insurance market,” Howell noted.

Cover-More is a market leader in Australia and New Zealand and among the market leaders in India and the US, according to Zurich.

Growth in tourism is particularly strong in Asia Pacific, where international arrivals increased by 9 percent in the first nine months of 2016 compared to the same period a year ago, and in Africa, which saw an 8 percent gain, Zurich noted.

Part of the rationale behind the proposed acquisition is that it would provide Zurich with a stronger foothold in the global travel insurance market.

Mooy believes that there will be more consolidation in the travel insurance market. “From the insurers' side but also on the customers' side there are more and more international companies that would like a global proposition,” she said.

While AXA Insurance, which operates only in the UK, is not currently planning any M&A, it is looking to expand in the segment through actively looking to work with new partners, Mooy said. There are certainly benefits in working with a partner who has a strong relationship with the customer, particularly because the segment is characterised by low premiums and retention rates compared to other products, she said.

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