It’s Time to Redesign Insurance Regulations
The U.S. insurance market has evolved, just as the global insurance market has, into a complex industry that includes life insurance, home and health insurance, automobile insurance, and in 1860, the introduction of travel insurance. While the industry continues to grow exponentially into countless niche markets being driven by insurtech, twenty-first century regulations are largely the same as they were 100 years ago when life, property and casualty insurance were the dominant policies sold. If the industry is to survive, industry regulations need to be redesigned.
An industry born in the 17th century
The origins of the insurance industry date back to 1686 when Edward Lloyd began selling maritime insurance in the City of London from his establishment, Lloyd’s Coffee House. The establishment also served as a center for shipping news and dominated the maritime industry for decades. It became a syndicate of underwriters backed by Parliament in 1871 under the Lloyd’s Act – and has been operating as Lloyd’s of London ever since.
Lloyd’s has seen many key events since 1871 including, the San Francisco Earthquake of 1906, the Gulf Coast’s Hurricane Betsy in 1965, an asbestos debacle in the 1990s and other natural catastrophes that other underwriters and insurers have had to bear such as the 911 attacks in 2001 and Hurricane Katrina in 2015.
The industry is focused on coverage for our daily life
Most regulations are focused on coverage for daily life, such as the aforementioned life, health, home and auto coverage, even though there are a myriad of coverage options now available to the consumer such as pet insurance, travel insurance, recreational vehicle insurance, and specialized coverage for earthquakes, fires and floods.
As specialty coverage options have grown, change has been made at a glacial pace to regulations within the insurance industry. This has had a detrimental effect on short-term, non-renewable policies such as travel medical insurance, immigrant visa insurance, and trip and flight insurance for travelers.
The travel industry insurance industry struggles under legacy regulations
The travel insurance industry has been adhering to one unified set of rules designed for three primary insurance products very different from travel insurance. This niche but growing industry has had to follow legacy rules of the larger, overall insurance industry not designed nor suited for the travel insurance industry.
Operating under the weight of burdensome regulations designed for long-term, renewable products is like trying to put a square peg in a round hole. It is frustrating, requires significant resources to ensure compliance and cuts into the bottom line. We need to devote time and attention to re-designing regulations that are specific to the travel insurance industry and not blanket rules that primarily apply to annual, renewable insurance products.
The travel insurance industry is dwarfed by other insurance sectors and often treated as a secondary or surplus line of insurance. One of the reasons so little attention is paid to the travel insurance sector is that it is low-volume but poised for huge growth. According to Adroit Market Research, the global travel insurance market reached $18.9 billion in 2017. That figure is projected to nearly double to $35.1 billion by 2025, with a CAGR of 7.9%.
What the U.S. insurance industry needs to do to embrace the travel insurance sector
The travel insurance industry has been complying with one unified set of rules designed for other insurance products even if they are not designed for the travel insurance industry. A good example is this: Travel insurance agents have to take the same exam as life insurance brokers yet there is very little mention of travel insurance in the exams.
Three ways to redefine and regulate travel insurance within the insurance industry
- Develop a common language for license testing and product definitions
- Clearly define travel insurance and draft regulations germane to the sector
- Add a separate segment in the Book of Insurance specifically for travel insurance
The industry considers travel insurance a small subset and therefore something that requires a very small amount of attention. It’s currently not required world-wide but is required in many places around the world. Regulations are not unified, all 50 states have their own Department of Insurance with 50 different rules. It’s time for the industry to rethink and redefine this industry.
We are not saying that we in the travel insurance industry do not want to be regulated, we are saying that we want the right regulations for our industry.
Rajeev Shrivastava serves as CEO to global insurtech company VisitorsCoverage Inc., and has also founded several online technology brands including TMQuotes.com, an innovative technology platform that empowers insurance agents or brokers to sell travel insurance online.