"New normal" travel insurance: ASEAN in the post-COVID-19 era

No insurance product has been as adversely affected by the COVID-19 pandemic as travel insurance. Travel and social restrictions both within and without countries were introduced and are still in force in an effort to curb the spread of the virus. With the lack of travel came a precipitous drop in travel insurance premium volumes. However, global vaccination rollouts have provided a glimmer of hope for worldwide travel, sparking a conversation on the evolution of travel insurance in a post-pandemic world. In the following sections, we aim to explore how ASEAN countries have been gradually opening up their borders, along with the progress shown by insurers in the region to adapt to the evolving situation and its repercussions for the travel insurance products of tomorrow.

ASEAN countries are opening up slowly

It has been over 18 months since countries implemented lockdowns and foreign tourists were banned from visiting. As a result, global tourism and travel insurance markets have taken a big hit from the COVID-19 crisis. There is no clear vision of when these markets will fully recover. However, certain parts of the region are slowly reopening. Below is a snapshot of travel arrangements allowed in some of the key ASEAN countries, at the time of writing.

• Thailand: The "Land of Smiles" relies heavily on the tourism industry and is among the first ASEAN countries to welcome fully vaccinated tourists (without quarantine) through the Phuket¹ and Samui² sandboxes. Recently, it has also been announced that more destinations will welcome fully vaccinated tourists from 1 November onwards.³ Bangkok is one of them.
• Malaysia: The government launched a domestic travel bubble allowing vaccinated Malaysians to travel to Langkawi from 16 September onwards.⁴ There is still no plan to receive international tourists.
• Singapore: The city-state had plans to experiment with a travel bubble arrangement with Hong Kong as early as November 2020, when vaccination rates were still low. However, the arrangement has been abandoned. Recently, Singapore allowed a quarantine-free entry for vaccinated travelers from selected countries like Germany and Brunei.⁵
• Indonesia: After several attempts to reopen, Bali has postponed plans to reopen to tourism due to rising COVID -19 cases in the island. Recently, Bali announced it would attempt to launch another travel corridor⁶ with Indonesia’s tourism minister raising the idea of a tourism “triangle” involving Phuket, Langkawi and Bali.⁷
• Vietnam: Phu Quoc Island will be the country’s first tourist destination reopening to fully vaccinated foreign visitors starting November 2021.⁸

Insurers’ responses to COVID-19 so far

Insurers in ASEAN have reacted slightly differently to the COVID-19 pandemic with regards to travel insurance. It is promising that we have seen insurers extending coverage to include COVID-19 in the following instances:

• In Thailand, all general insurers are providing COVID-19 medical expenses coverage as a part of their travel products at the requirement of the regulator. In addition, there are initiatives observed in the market to ease the burden of travelers during the pandemic. These initiatives include allowing the postponement of policy effective dates and the cancellation of policies if a planned trip fails, as well as an extension of the coverage period.
• Several insurers in Singapore, Malaysia and the Philippines have added comprehensive COVID-19 coverages to travel insurance, through “add-ons” or via extending the coverage. These coverages differ across insurers, but generally include (and are not limited to) medical expenses, daily cash benefit upon quarantine, repatriation and trip cancellations, subject to terms and conditions.

On the other hand, a majority of insurers are yet to provide coverages against any travel insurance claims caused by COVID-19 infections or have halted COVID-19 claim payments when the outbreak was officially announced as a pandemic.

• Most insurers in Malaysia still have exclusion clauses related to any communicable or contagious diseases or pandemics declared by the World Health Organisation (WHO).
• Some insurers in Singapore that had previously paid cancellation claims due to COVID-19 ceased the coverage later through exclusion clauses related to “known events” or “communicable disease.”

Given the lack of international travel in the region, companies shifted their focus towards domestic travel insurance through direct and affinity channels in an attempt to save their toplines. Some companies in the region even started offering domestic travel insurance on an annual basis, which was not offered conventionally during the pre-pandemic times.

Future opportunities, but travel insurance products are not quite ready

Countries like Thailand, Singapore and Vietnam are requiring travelers to have mandatory travel insurance covering necessary medical expenses related to COVID-19 as part of their travel bubble initiatives. We expect more countries and even players within the tourism industry, such as tour companies and cruise operators, to follow suit in the future. Hence abolishing pandemic-related exclusions, at least for COVID-19, will become the new normal.

Traveling during the pandemic is stressful, with more than a desirable level of uncertainty. Sudden border closures, emergence of hotspots and the propensity for COVID-19 infections before or during trips, as well as unforeseen rescheduling of flights, have a greater likelihood of causing disruptions to travel plans than before. Due of this, the COVID-19 pandemic has directly increased customers’ awareness of the need for insurance protection, and we believe that this heightened awareness for travel insurance will likely continue even after the pandemic is declared over (or reclassified as an endemic).

In the future, the customers will expect more protection in travel insurance products to help mitigate the burden from similar crises like the COVID-19 pandemic. This implies that they will expect more comprehensive coverages related to trip cancellations and will have more willingness to accept premiums that reflect the higher protection. Indemnity for cancellation or curtailment due to contracting COVID‑19 will be a must. In some case studies, we have also seen proven surges in demand for even more flexible coverages for cancellation, aka the “cancel for any reason” policies. Statistics from travel insurance comparison websites in the United States, such as Squaremouth, show that the demand for travel policies with “cancel for any reason” protection has grown more than fivefold from summer 2019 to 2020.⁹ We believe that ASEAN consumers are likely to have similar needs as they are not isolated from the travel disruption introduced by the pandemic. Although this coverage type is rarely seen in the ASEAN market, it would be interesting to see what would happen if insurers started enhancing their existing travel insurance products to capture the potential new opportunities after COVID-19.

Challenges of “new normal” travel insurance

A “new normal” travel insurance would certainly bring challenges to insurers, especially in terms of risk assessment and pricing. While we expect burning costs for perils like baggage, theft and travel delays to remain largely the same, the burning costs for cancellation and medical claims, which are usually the two largest perils, will certainly be impacted.

• Medical cost
  • At face value, this may be considered a high-risk or high-cost cover. However, there are multiple considerations, some of which indicate this risk is manageable.
  • Tourists would not travel unless they feel “safe” about the destination and, likewise, destination countries would not open up unless COVID-19 were largely under control, i.e., with a low local infection rate and a satisfactory vaccination rate. Moreover, most tourists are required to take COVID-19 PCR tests before a trip and potentially a few days after arriving at the destination country. Taking Phuket in September 2021 as an example, we can observe that the reported cumulative infection rate among travelers to date is 0.3%,¹⁰ which is significantly lower than the equivalent local infection rate of 2.2%. The fully vaccinated rate to date of Phuket is around 84%, while it was at 65% at the beginning of the Phuket sandbox.¹¹
  • COVID-19 admissions can be very expensive due to potentially long lengths of stay in intensive care units (ICUs). And it is for this reason the minimum mandatory COVID-19 medical cover required for travellers to Singapore is SGD 30,000¹² and for travellers to Thailand is USD 100,000.¹³ However, further study needs to be made into the severity of the cases for those who have been fully vaccinated and even for when they received their last doses. Initial data indicates that only a small proportion require hospital care. Also, at some point in time, when the volumes of COVID-19 cases are under control (presumably the same time travel restrictions are loosened), private hospitals will stop taking in COVID-19 patients but instead refer them to government hospitals, which are lower-cost. In general, if there are not meaningful volumes of COVID-19 patients, private hospitals will prefer not to maintain isolation wards and procedures and take the risk of cross-infection to the substantially larger number of non-COVID-19 patients.
  • However, the potential for a large COVID-19 claim exists and insurers will have to reexamine the minimum portfolio size needed and/or their reinsurance arrangements to ensure an adequate spreading of risk. Minimum portfolio size will become increasingly important if the reinsurers are not supportive of COVID-19 coverage extensions.
• Cancellation cost
  • Average cancellation costs would remain broadly similar to the pre-pandemic era because they include expenditures in relation to accommodation, tickets, excursion charges etc. Given that most airlines, hotels and tour operators are offering flexible options like free cancellation or free unlimited rescheduling (at least for the time being) one would expect the costs to be even lower than before. This is because expenses would be recoverable now, leading to claims to be void that would usually be valid.
  • The most significant immediate risk is cancellations following another COVID-19 variant wave. As numbers drop and more travel destinations open up, travel will resume and possibly even surge in near future. However, there is a real possibility that another, albeit smaller, wave will follow. This wave will lead to cancellations. However, whether or not this will become a real cost to the insurers will eventually depend on the flexible options offered by the companies in the travel supply chain. Insurers will need to be agile by closely monitoring the flexible options offered by these companies and adjusting their products as well as pricing in a timely manner.

Now is the time to lead

When travel restrictions are finally lifted, many expect a surge in travellers who have been “housebound” for over 18 months. In some places, travel destinations are gearing up for this. Opportunistic investors have taken over troubled vacation resorts in anticipation. Insurers looking for a significant share of the “new normal” travel insurance market should act now to build brands with comprehensive travel cover.

¹Embassy.com (22 September 2021). “No Quarantine” Phuket Sandbox. Retrieved 28 September 2021 from https://www.thaiembassy.com/travel-to-thailand/no-quarantine-phuket-sandbox-plan.

²Embassy.com. Samui Plus Sandbox: Travel to Thailand Without Quarantine. Retrieved 28 September 2021 from https://www.thaiembassy.com/travel-to-thailand/samui-plus-sandbox-travel-to-thailand-without-quarantine.

³Reuters (27 September 2021). Thailand to reopen to more vaccinated visitors from November. Retrieved 28 September 2021 from https://www.reuters.com/world/asia-pacific/thailand-further-ease-coronavirus-restrictions-2021-09-27/.

⁴Ong, E. (17 September 2021). Langkawi Travel Bubble SOPs: All You Need to Know When Planning Your Holiday. Klook. Retrieved 28 September 2021 from https://www.klook.com/en-MY/blog/langkawi-tourism-travel-bubble-sop/.

⁵Ng, A. (20 August 2021). Singapore conditionally lifting quarantines for travelers from Germany, Hong Kong, Brunei and Macao. CNBC. Retrieved 28 September 2021 from https://www.cnbc.com/2021/08/19/singapore-to-allow-quarantine-free-travel-for-germany-hong-kong-visitors.html.

⁶Vincej, V. (20 September 2021). Bali to Reopen for Tourism in October 2021, Says Indonesian Government. Traveling Lifestyle. Retrieved 28 September 2021 from https://www.travelinglifestyle.net/bali-reopening-borders/.

⁷Reuters (15 September 2021). Langkawi gears up for tourist return, Bali for foreign visitors, amid suggestion of tourism "triangle" with Phuket. Retrieved 28 September 2021 from https://www.scmp.com/lifestyle/travel-leisure/article/3148787/langkawi-and-bali-gear-welcome-back-tourists-amid.

⁸Chau, M.N. (12 September 2021). Vietnam to Open Phu Quoc for Vaccinated Foreign Tourists in November. Bloomberg. Retrieved 28 September 2021 from https://www.bloomberg.com/news/articles/2021-09-13/vietnam-to-open-phu-quoc-for-vaccinated-foreign-tourists-in-nov.

⁹Squaremouth (26 August 2021). How COVID-19 Changed Travel This Summer. Press Room. Retrieved 28 September 2021 from https://www.squaremouth.com/press-room/covid-19-changed-travel-this-summer.

¹⁰BBC News (11 September 2021). COVID-19: Phuket reports new cases and higher deaths but insist on moving forward "Phuket Sandbox" next. Retrieved 28 September 2021 from https://www.bbc.com/thai/58528595.

¹¹Phuket Provincial Public Health Office.

¹²SafeTravel. Mandatory Inbound COVID-19 Travel Insurance. ICA Singapore. Retrieved 28 September 2021 from https://safetravel.ica.gov.sg/health/travelinsurance.

¹³Embassy.com. COVID-19 Insurance for Foreigners in Thailand. Retrieved 28 September 2021 from https://www.thaiembassy.com/travel-to-thailand/covid-19-insurance-for-thailand.