What You Need to Know About Buying Travel Insurance Through Your Bank

We live in a world that sets a high value on convenience. You only have to take a look at the smartphones most of us carry around with us to realise how much we like tools and services that allow us to multitask, that cover any number of bases in one convenient bundle.

Perhaps that is part of the reason why, in recent years, we’ve seen the phenomenon of banks selling insurance. Traditionally, despite being part of the broader financial sector, banks and insurance companies offered very different services and operated in distinct markets.

But those old lines have become increasingly blurred as more and more banks have taken to offering insurance. There are two models for this – one, banks challenging incumbent insurance providers by selling standalone policies for travel, car and home insurance etc. And two, the ‘packaged’ services model, in which banks bundle in a whole range of insurance products as part of a current account, credit card or other financial product.

It’s easy to understand the attraction to consumers, especially the packaged model. What could be more convenient than setting up a new account and getting your travel, car and gadget insurance all thrown in as part of it? As for the banks, it lets them grab a slice of the extremely lucrative insurance industry.

But is the insurance you get from your bank – what amounts to a freebie thrown in with another service – as good as buying direct from a specialist? 

As far as travel insurance goes, the importance of getting robust protection when you head abroad has been cranked up a notch or two by the COVID-19 pandemic. With the heightened medical risks and high possibility that your trip could be hit by cancellations one way or another after you have put down a considerable sum of money, you want to be sure you are getting cover for all eventualities. Do the policies you get through your bank really cut it?

Basic cover

One of the things that has made the insurance packages offered by banks stand out in the market is the very attractive pricing. When you are getting three or four different types of annual cover as part of the same paid-for premium account service, what you find is that, as well as being very convenient, the cost per policy is very low.

But the saying ‘you get what you pay for’ is very true of insurance. Consider this – even when a bank offers standalone insurance policies, most banks do not have the expertise or the operational infrastructure to underwrite that cover. That is a highly specialist area, so banks basically sign an agreement with an insurance underwriter to brand those policies under their name. The mechanics of writing policies, processing claims and so on is done by a third party. Both the bank and the underwriter have to take a cut to make it worth their while. As banks are also trading insurance at the budget end of the market, there just isn’t room to offer anything but the most basic cover possible.

Based on the economies of risk insurance providers have to operate within, it is very difficult for budget policies to offer the kind of heightened protections travellers are looking for in the wake of the COVID pandemic. We have already seen large numbers of providers decline to offer cover for COVID-related medical expenses and cancellations, and banks are prominent in that list.

Ultimately, as with any product, a race to the bottom on pricing eventually ends in push back from consumers. Once the lower costs result in a noticeable decline in quality, people reset their radar on value and are prepared to pay more again to get a better product. The necessity created by COVID-19 could well trigger such a process in travel insurance, and if so, many banks could easily find there is just no longer any value in the market for them. In fact, that process may already have started, with high-profile names like Halifax discontinuing their travel insurance.

For more information, visit Avanti Travel Insurance.