At Snowbird Advisor Insurance, our clients often ask us how insurance companies determine their rates, why rates differ from provider to provider and why rates can change from year to year.
In addition, if you’ve ever explored travel insurance options, it’s likely that at one point or another you’ve heard the following blanket claims from a friend or relative - or from complete strangers on social media:
“Company X has the best prices on travel insurance” or “Company Y charges too much for travel insurance”
The truth is that in almost every case, neither statement is accurate (for a variety of reasons we will go into below) and no single insurance provider offers the lowest premium for every traveller in every situation.
Our goal at Snowbird Advisor Insurance has always been to provide travellers with information that helps you better understand travel insurance and make more informed decisions – regardless of whether or not you choose us as your travel insurance provider.
In that spirit, we are pulling back the curtain on travel insurance pricing to help you understand how it works, why no one provider has the lowest premiums in all circumstances and why you should take it with a grain of salt when you hear someone say Insurance Company X has the lowest/highest rates.
Remember, just because someone else found a particular insurance provider had the lowest rates for them, it doesn’t mean the same provider will have the lowest rates for you.
That’s why despite the fact that Snowbird Advisor Insurance takes great pride in the coverage options and pricing we provide to our clients, we always suggest you shop around and consider factors other than price when choosing a travel insurance provider, such as coverage features, service and reputation.
The main factors that influence travel insurance premiums
There are many factors travel insurance companies consider when determining their premiums, and the way each insurance company evaluates each factor varies from company to company.
Below are the most common factors that travel insurance providers look at when determining how to price their policies:
1. Risk Assessment
Travel insurance companies evaluate risk factors like age, medical conditions, trip duration and sometimes even trip destination to help determine how much they charge.
In addition, since the onset of the COVID pandemic, some insurers have also started evaluating risk factors such as the risk and costs of becoming ill with COVID and vaccination status.
The important thing to be aware of is that every insurance company evaluates each type of risk differently, which can result in different pricing.
Two travellers are both 65 years old and travelling for 90 days, but they each have a different medical condition.
Both travellers compare travel insurance quotes from Company A and Company B.
Based on their different medical conditions, one traveller gets a lower premium from Company A and the other traveller gets a lower premium from Company B. In this case, the insurance companies have assessed the risk of each traveller’s respective medical condition differently and priced their premiums accordingly.
The same principle applies to other risk factors like age and trip duration, so it’s not hard to see why one insurance provider might offer a lower premium to a traveller with a certain profile, while a different provider would offer a lower premium to a traveller with a different profile.
2. Coverage Features
Although price is a good place to start comparing travel insurance options, it’s more important to make sure your policy’s coverage features and benefits are appropriate for your needs.
Your goal shouldn’t be to find the cheapest travel insurance policy possible – it should be to find the least expensive policy that provides the coverage and assistance you need should you ever require it.
We said it before and we’ll say it again, you may feel like you’re getting a good deal when you buy the cheapest policy available, but that policy is worthless if it doesn’t provide the right coverage.
And when it comes to coverage, different types of travellers value different features and benefits.
For example, Snowbird Advisor Insurance offers a personalized coverage option that includes coverage for pre-existing medical conditions with no stability requirement, an important feature for many snowbirds, mature travellers and other individuals with medical conditions.
Some other coverage features and options you’ll want to review and compare include:
- Coverage Limits & Restrictions – Review these closely to see what your policy’s overall coverage limit is, coverage limits for specific types of expenses and what may be excluded from coverage.
- COVID Coverage – Does your policy include coverage for COVID? If it does, what are the coverage terms and limits?
- Stability Clause Requirements – If your policy has a stability clause, you’ll want to know how long your pre-existing medical conditions need to be stable, what the definition of stable is and any other requirements.
- Multi-Trip Annual Plan & Top-Up Options – What’s the maximum number of days you can be away for each trip? How flexible are the top-up options if you want to stay longer?
- Deductibles – Does your policy have a deductible? If so, how much is it and are you able to change your deductible amount? What currency is the deductible in, Canadian or U.S. Dollars?
- Medical Assistance Services – Does your policy include helpful medical concierge services such as physician house calls, physician assessments by phone or video, prescription medication delivery and treatment fast-tracking?
- Age Limits – Some policies only cover you up to a certain age.
3. Foreign Currency
Since travel insurance premiums are paid in Canadian currency, while most claims are paid in a foreign currency - such as U.S. Dollars, Mexican Pesos or Euros - foreign exchange can factor into premiums.
To put this in context, the weaker the Canadian dollar is, the more it costs insurance companies to pay claims in foreign currencies. Accordingly, when the Canadian dollar is weak or is projected to be weak for the foreseeable future, insurance companies may increase their premiums to cover the higher cost of paying claims in another currency.
Claims - both historical and projected – also play a part when travel insurance companies are determining their premiums.
This is because travel insurance - like all other insurance products – uses “pooled funds” to cover future claims. In other words, each policyholder contributes a premium that goes into a pool to help fund future claims from all policyholders.
Based on their historical claims, as well as other data and factors, insurance companies try to predict what their “expected claims” will be for the upcoming season and establish their premiums accordingly in the hopes they will be sufficient to cover those claims, which makes setting travel insurance premiums both an art and a science.
On the claims front, “medical inflation” also plays a part in determining travel insurance premiums, which takes into account what the expected overall increase in health care costs will be in a specific geographic region (country and state) and adjusting premiums accordingly.
A Word About Travel Insurance Discounts
Many travel insurance providers offer pricing discounts, with some of the more common ones being:
- Membership Discounts - for individuals who are members of a certain group or association (full disclosure: Snowbird Advisor members receive a 5% Membership discount on some Snowbird Advisor Insurance travel insurance policies).
- Loyalty Discounts - for repeat clients
- Claim Free Discounts - for not making a claim over a certain number of years
- Early Bird Discounts - for purchasing your policy before a certain date
- Spousal Discount – for spouses who purchase their policies together
And while discounts can sometimes result in better pricing, don’t assume that just because someone is offering a discount that their pricing will be better.
In many cases what appears to be an attractive discount may not result in the best pricing because that provider’s regular pricing is higher than their competitors.
That’s not to say you shouldn’t look for discounts, but the only way you’ll know for sure if you’re getting a good price is to shop around and compare premiums.
Other tips when comparing travel insurance prices
Watch out for deductibles
In many cases, the initial quote you receive from insurance providers will have a $0 deductible, which means your eligible claims will be covered from the first dollar.
However, some insurance providers will provide you with an initial quote that includes a deductible amount (common deductible amounts are $500, $1,000 and $5,000), which means you have to cover the deductible amount out-of-pocket for any eligible claim and the insurance company will cover the balance.
The higher the deductible amount, the lower the premium, which can be misleading and give consumers the false impression that one provider’s premiums are lower than another provider’s premiums, when in fact the only reason for the lower premium is because that provider is quoting a higher deductible.
When comparing travel insurance premiums from different providers, always make sure you ask what the deductible is, as deductibles amounts can have a significant impact on premiums, and you’ll want to make sure you are comparing apples to apples.
Which providers are others comparing?
If you’re looking to friends, family members or strangers on social media for guidance on which providers have the lowest/highest rates, do so with a big grain of salt and a healthy dose of skepticism for two reasons:
- As mentioned earlier, just because one travel insurance provider had lower rates for someone else, it doesn’t mean their rates will be the lowest for you based on your unique personal profile and travel habits.
- Those other individuals claiming “Travel Insurance Company X has the lowest/highest rates” may be basing their opinion on a small sample size of companies they compared, which might not even include companies you are considering.
The Bottom Line
If you do find a travel insurance provider that has lower pricing across the board, it’s likely because their coverage features and benefits aren’t as comprehensive as other providers.
It’s also important to be aware that while price is an important factor when choosing travel insurance, it shouldn’t be the overriding factor. Other factors like coverage features, reputation, service and claim payouts should ultimately guide your decision.
Buying a travel insurance policy based on price alone can be dangerous, as any money you save up-front could end up costing you much more down the road if it doesn’t cover you when you actually need it.
Having said that, nobody wants to pay more than they have to for the right travel insurance coverage, so comparing premiums is a logical place to start your search - just make sure you’re comparing apples to apples.
And while pricing can vary among insurance providers, generally speaking, these price differences will be quite small if you’re comparing apples to apples. If you do find a big price discrepancy between two policies that appear to offer similar coverage, dig a little deeper to make sure there isn’t some other reason for the big gap in price.
Disclaimer: The material provided in the Snowbird Advisor Insurance Learning Centre is for informational purposes only and does NOT constitute insurance, legal, financial or other advice, and should not be relied on as such. If you require such advice, you should speak with a qualified professional to assist you.