No one would have been unduly surprised at the observations of Mark Fitzgibbon, chief executive of insurance company NIB, following his firm’s acquisition of World Nomads in July this year.
Speaking about the travel insurance market following the announcement of NIB’s $95m deal for the company founded by Michael McAuliffe and the late Wayne Tregaskis, Fitzgibbon said what you might expect the boss of a direct-to-consumer business to say.
“The future,” he told analysts and investors on a conference call, “is very much moving beyond buying travel insurance from a travel agent.”
It was a remark – one which NIB has since downplayed – sure to have ruffled the feathers of some industry players, especially those committed to working through the agency channel.
Yet Fitzgibbon’s views are not out of step with common thinking.
For some time the glut of online players and their aggressive marketing tactics, as well as the rise of travel insurance policies attached to credit cards, have intensified competition in a product sector that has traditionally generated sizeable revenues and generous margins for travel agents.
Fitzgibbon declined a request to speak to travelBulletin, but NIB rejected suggestions the comments carried any sinister overtones regarding future travel trade distribution.
Fitzgibbon, a spokesman said, was merely articulating the realities of today’s market, namely there are several distribution channels and several ways for consumers to purchase. Travel agents are just one of those channels.
But according to international market research by consultancy Finaccord, which specialises in the study of the financial services sector, travel agents should prepare to see their market share continually eroded by these competitive pressures.
A survey of 1000 consumers conducted in Australia last year revealed a potentially worrying trend: more than half bought direct from insurance companies, with only one in five purchasing through the trade.
Other channels included airlines, automotive associations, banks, Australia Post, insurance brokers and comparison sites.
Finaccord was unable to provide comparisons as last year was the first time Australia has been included in its Travel Metrics research program. But consultant David Bowles, Finaccord’s international research expert, said he would expect Australia to follow the same patterns found in European markets where sales through the trade have fallen in four of the five countries it has studied since 2010.
“It’s worth adding that in 2014 the proportion of purchases through the travel trade channel in Australia was actually relatively high, but given the trends we’ve seen in Europe, I’d agree with the [Mark Fitzgibbon quote]. I would certainly expect the same pattern to be the case in Australia as people move increasingly to direct purchases online, and companies increasingly offer their products in this way.”
Bowles added that its research identified a trend to buy annual, or multi-trip policies, which, he suggested “are naturally better suited to buy through banks or direct from insurers rather than being ‘packaged’ with holidays or flights”.
While this snapshot of consumer booking habits may make uncomfortable reading for retailers, it is at odds with a breakdown of sales by distribution channel, also compiled by Finaccord and re-produced by NIB in a presentation to investors.
According to the figures, sales through travel agents represented more than half the market between 2008 and 2012, way ahead of the next largest channel, classed as “financial institutions, airlines etc.”
Observers believe the true figure is likely to be somewhere in the middle. However, Bowles urged caution, emphasising the dated nature of the 2008-12 figures and explaining they were based sometimes on older written submissions from those within the industry. In short, they are too old to be reliable.
“In future work on the Australian market, and other markets, we would certainly use the consumer research figure as the basis for understanding the market,” he said.
But, as always, there is another side to the story. Brad Smith, chief sales officer at Allianz Global Assistance (AGA), said almost half its total travel insurance policies are sold through the trade, and claimed it was witnessing growth, not a decline, despite the blow of losing preferred status with helloworld towards the end of last year.
“We see travel agents as a thriving channel and the growth for us has been double digit year on year so we don’t see a trend cooling off in any way,” Smith told travelBulletin.
“Online and direct sales are of course an important space and it’s there for a reason, but consumers want to have the ability to speak to a specialist and get the advice on a whole travel package and that includes the insurance component.
“There are those who jump online and do their own comparisons and shop purely on price and there is a market for that. But there are plenty of people who want peace of mind and want to talk to someone who can give them the right advice and make sure they are sold the right product for their needs.”
Smith described the online environment as “noise” which, far from working against travel agents, can often have the opposite effect and convince consumers to buy their insurance when they book their travel.
Smith says the online space has become overpopulated, which has created the need for clarity, particularly over the interpretation of the Product Disclosure Statement (PDS).
“We are not seeing a trend of declining sales,” he said, adding that agents can simplify what can be a complex purchase. “There are millions of iterations of what can be contained within a policy and to go through the quagmire of a PDS online can be quite difficult as they can be extensive in nature and difficult to interpret.
“Part of our agent training is explaining a PDS in simple terms. Allianz Global Assistance regard agents as an irreplaceable pillar in the distribution and sale of travel insurance and we’ll continue to support them.”
Michael Callaghan, head of distribution for World Nomads Group, which includes other travel insurance brands including SureSave and Travel Insurance Direct, acknowledged it was a competitive market, but claimed it too was not witnessing a sales slowdown through agents.
“Sales under the SureSave brand climbed 10 per cent over the past 12 months so we are very pleased,” he said. “Agency distribution is a very important part of our business.”
SureSave produced consumer survey results of its own, which showed an increase in travel agent insurance sales over the past three years. According to the SureSave data, pulled together from interviews with 1000 consumers, 27 per cent purchased insurance from an agent in 2013. That climbed to a little under 31 per cent in 2014 and 31.3 per cent this year. It also revealed optimism within agency ranks, with 77 per cent of retailers believing they can increase sales of insurance over the next 12 months. Conversely, those booking directly with an insurance provider fell from 25.5 per cent to 23 per cent; while purchases through comparison sites climbed marginally.
“The travel industry is constantly changing and SureSave is evolving with it,” said Callaghan. “We have focused on developing a new strategic direction for the business to strengthen our offering to agents and travellers through a range of unique innovations,” he said. “It’s our goal to be positioned as experts in travel safety in the industry and to be more than just an insurance provider. This is an exciting time for SureSave as we look to stand out from the sea of corporate blue in this channel and change the way travellers view travel insurance.”
Comparison site, Compare Travel Insurance, dedicates an entire page to attacking the prices offered by travel agents, with warnings from a range of online players how expensive policies bought through the trade can be.
Natalie Ball, associate director at comparetravelinsurance.com.au, dismissed it was a deliberate attempt at scaremongering and claimed agents are wary of comparing their prices to those of online players.
“We would love to list the travel agents’ policies within our comparison site to allow consumers to compare the entire market, however the agents don’t want to be openly compared,” she told travelBulletin. “There is definitely no scaremongering. In fact, it is quite the opposite. We arm consumers with information to assist them to purchase the right policy for their trip. We encourage consumers to compare policies, cover levels and price and we suggest they get a quote from their travel agent and compare with other policies in the market.”
Ball said travel agents will always have a role for complex itineraries, the seniors market, and “the more traditional traveller” but claimed agents’ market share of the sector has declined sharply over the last two years, falling from 50 per cent to around 42 per cent.
“This drop is a combined result of the change in consumer behaviour when booking their travel, along with Aussies wanting to make well informed decisions in their own time,” she said. “More and more Australians are turning to online flight and accommodation booking sites to do their research and to book, and purchasing insurance is the next step in their online purchase journey.
“Purchasing through an agent will generally only provide one choice of provider and doesn’t allow for any kind of product comparison.”
Flight Centre rejected the notion that the future was “moving beyond” buying insurance from a travel agent, suggesting it was hardly surprising such a strategy was being furthered by a direct-to-consumer business. The retailer insisted sales of its preferred partner Cover-More “have been going well”.
“I don’t think the travel agency sector will be waving the surrender flag just yet,” a spokesman said. “We get really good attachment at the point of sale and we believe it’s a product that is vitally important for our customers.
“The reality is that most international travel is booked via agents and that creates opportunities to explain and promote the virtues of the products that are on offer, including insurance, to millions of travellers each year.
“For customers the key is to make sure they understand the product and the benefits it offers because the inclusions can vary widely. And the consequences can be severe if you get caught out,” Flight Centre added.
Helloworld also talked up its relationship with Cover-More – who, in light of its forthcoming financial results felt unable to comment on the issue – with outgoing chief executive Elizabeth Gaines highlighting recent events as a reason to book through an agent.
“The partnership with Cover-More has allowed us to work closely with them to develop the right insurance solutions that our agents need to deliver the best value product for their customers,” Gaines said.
“The Nepal earthquake and the Bali ash cloud have provided powerful triggers for our agents to highlight the importance of choosing insurance based on coverage rather than opting for the cheapest policy and paying the price when things go wrong.”
Despite Helloworld and Flight Centre’s bullish words there is recognition from senior figures within the agency community that revenues and margins for agents are under intense pressure.
Gil McLachlan, chief executive of McLachlan Travel Group, said credit card and online policies started to see significant growth after changes to the financial services laws made it illegal for agents to advise customers on insurance.
“The following year the insurance ombudsman came out criticising agents because of a dramatic increase in complaints from consumers about their policies,” he explained. “The reason of course was the new prohibition on agents giving advice and a consequent increase in credit card and online policies.
“There is now a greater reliance on credit card “free” policies whilst actual paid insurance sales are much more thinly spread… even the post office sells them.”
Credit card insurance policies were also identified by National Network Travel and Cruise managing director Kevin Dale as a major contributor to a drop in insurance sales through the trade.
“The coverage of credit card policies has improved. There was a time when they weren’t so good but you need to look at credit cards rather than the online suppliers as a major reason for any fall in insurance sales,” he said.
Although acknowledging that increasing distribution channels have seen an inevitable decline in sales through agents, McLachlan said his own group’s insurance business has lifted, partially because of consumer “issues” with alternate sources.
“I think the main reason passengers who have stuck with agents have done so, even when they have duplicated policies through credit cards, is an expectation that the agent preferred policies may be more reliable,” McLachlan said.
“The justification for taking a more expensive product is possibly that you don’t know the price of the premium until you have a claim.”
It is the element of trust, and the reassurance that consumers still get from face-to-face transactions that is likely to hold them in reasonable stead. After all, we’ve all been here before.
“It’s similar to the way the industry adapted to online competition in general – the disruption to the traditional retail model occurred long ago and is now just a routine part of the mix,” McLachlan said. “The bottom line is that online insurance sales have been part of the mix for a long time and I doubt if many agents have much concern about it these days.”
That said, it is clear the historically generous margins may not be what they were as agents have had to eat into their margin to present a more compelling, and competitive price.
To some in the industry, Mark Fitzgibbon’s prediction of a future “beyond travel agents” is already with us, and it is not quite as worrying a prospect as it might once have been. It is clear that agent margins have eroded as they have fought to stay competitive, but in a world where travel agents have already shown themselves willing and able to fight in their corner in a competitive and cut throat landscape, the words are like the proverbial water off a duck’s back and regarded as little more than a sales pitch. Time will tell.
