Travel Insurance: Strong medicine in a single dose

May 19th, 2009    by IsaacCymrot

There is one over riding complaint that I hear from almost every agent this year. You are frustrated with the reduction in commissions, whether due to cuts by suppliers, the impact of clients buying cheaper trips, or the rise in Non Commissionable Fares (NCFs).  Despite seeing an increase in the number of policies sold this year, I am still baffled by the overall sales closing ratio for many agencies remaining so low.  In 2007 the United States Travel Insurance Association (USTIA) found that travel agents only sold third-party travel insurance 30% of the time–30%!

In today’s market it is remarkable to see the amount of insurance commission that travel agents still leave on the table despite their business challenges. You face shrinking commissions, increasing NCFs, and concerns about the financial instability of many tour suppliers. Bankruptcy and default is the most important reason for you to offer a third party insurance policy, especially in today’s economy.  Tour supplier’s cannot cover themselves for bankruptcy and default and if you have been in the industry long enough have probably been affected by these events.  However, there is more than one reason to offer third party travel insurance and they can benefit both you and your client.

Third-party travel insurance pays the highest commissions in the industry.  All major travel insurance companies offer commissions ranging from 15% to 38% or more. This dwarfs the 10% paid by most tour suppliers.  Additionally, some third-party travel insurers offer agents commission protection (protecting as much as 15%). This compares to most tour suppliers that cap their commission protection at $100, if they offer any at all.

The best way to demonstrate the profitability of a properly executed insurance program is to give some agency examples. When offered with conviction and included as part of the sale price, third-party travel insurance offers the best protection to the client and the agency, while delivering a significant amount of money to these agencies’ bottom lines.

The agency in each of the following examples increased their third-party travel insurance sales by at least 25%. One agency now closes insurance with 70% of their travel sales!  That translated into an additional $12,350 in commission in 2008 for this retailer. Even the agency with the smallest increase (26%) still earned $7,000 more than the prior year.

The first example is a medium-sized agency that previously offered the client the option of tour supplier insurance or third-party insurance.  Typically, the client would pick whichever option was cheaper and ignored the differences in coverage.  One client suffered a heart attack during their vacation.  It was later determined that the attack related to a pre-existing condition.  The client had purchased the tour supplier’s insurance which offered no pre-existing medical conditions coverage.  Unfortunately, this agency’s client was stuck paying a $10,000-plus medical bill because the tour supplier insurance denied their claim due to a pre-existing condition.

The incident convinced the agency owner that it was imperative to only sell a third-party travel insurance company that offered a pre-existing conditions waiver.  At the time the agency was only selling third party insurance to 13% of its clients.  In three years since making the change to exclusively offer third-party insurance the agency’s sales increased to 70% on third party insurance. Their commissions have increased substantially.  Additionally, the agency recovered a total of $3,000 in lost tour supplier commissions by using the commission protection benefit offered by their third-party insurance provider.

A second agency offered their clients a choice between two competing third-party travel insurance companies, but one client suffered a similar loss. One of the agency’s best clients referred his brother to the agency to book his vacation.  The brother had always booked his travel online and had never used a travel agent. This time he chose to use a travel agent because he was planning an expensive two-week trip to Asia.  The agent arranged the trip which cost over $17,000.

When the time to talk about insurance arrived, the agent handed the client two brochures from competing travel insurance companies.  The client rejected both policies, did not sign a waiver and chose to travel without any trip cancellation coverage.  Three days before the client was scheduled to depart on the trip he had to be hospitalized.  The doctor advised that he must not go on his trip.  The brother lost his $17,000 vacation and sued the agency for not recommending a travel insurance product.  The agency also lost one of its best clients for failing to insist that the brother add an insurance plan.

The agent asked the client’s brother why he had not purchased the insurance that was offered to him. His answer was that because the agent could not confidently recommend one insurance company over another he did not feel comfortable buying either product. This incident convinced the agency owner to offer only one insurance product.  This new approach immediately inspired new client confidence in the agency’s recommendations.  The simple switch helped increase the agency third-party insurance sales by 38% in the first year.  The result was an additional $9,500 in commission for the agency.

The last example is an agency that offered one third-party insurance product. It limited the amount of tour supplier insurance that was offered and sold to the client.  The agency owner, seeing that he was losing revenue due to clients declining coverage, implemented a system requiring the agents to include insurance with their quotes.  The owner had felt clients were hesitant to spend extra money even if they felt insurance was a good idea.  By including insurance in each trip quote the agent never had to ask the client to spend extra money.

This agency has been using this model for only six months and has seen insurance sales increase by 26%.  If you calculate this growth on an annual basis, it results in almost $7,000 in additional commission to the agency.

The agencies in all of the above examples have increased their annual insurance sales dramatically. In each case the owner made similar changes.  The changes included:

 

  1. Instructing his or her agents to include the travel insurance cost when they quoted their clients. The trip quote included the following statement: “This quote includes your trip cost, airfare, taxes, fees and optional travel insurance.”
  2. Requiring a signed client waiver acknowledging that third- party insurance was offered by the agent but declined by the client. This procedure was required before the agent was authorized to release travel documents to the client. Additionally, the signed client waiver releasing the agency was required even if the client purchased a tour or cruise supplier’s own insurance.
  3. Recommending only one travel insurance product. Discontinuing the practice of presenting two or three insurance brochures for the client to pick from.

 

When it comes to travel insurance you want to do the best thing for your client. Travel insurance can be a confusing and intimidating subject for many people, requiring some guidance from you as their agent.  If you take the time to learn the basics and recognize the advantages to be gained for both your clients and your agency from developing your own working knowledge of the subject, you will become more and more comfortable recommending third-party travel insurance.

As a travel professional you spend hours learning about the destinations and cruise ships that you sell on a daily basis.  The more you study the more comfortable and confident you become making recommendations to your clients.  Travel insurance is no different.  If you take the time to partner with one travel insurance company, and have someone you trust assisting you, then you will be able to implement the same strategies mentioned in the examples above.

There is plenty of uncertainty in our industry today, reflecting the unstable economy.
It is important to know how every potential travel risk situation could affect you and your client.  There is a healthy balance involved in doing both what is right for your client and remembering at the same time the best interests of your agency business. You can immediately satisfy both needs by offering a third-party travel insurance policy to every single person that buys a trip from your agency.

Challenge yourself for one month to adopt all three strategies mentioned in this article and find out for yourself how successful your travel insurance program can become.

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