With Britain voting to leave the EU, a lot of questions are being asked about how this will affect our travel insurance, now and in the future. In the short term, there are likely to be very few changes, as Britain is still officially a member of the EU until the government invokes Article 50 of the Lisbon Treaty and begins negotiations for Brexit. However, longer term, it is highly likely that our travel insurance premiums will increase significantly. Here are a few reasons why.
The EHIC may cease to be valid
This is the single biggest issue likely to affect insurance premiums for UK travellers in Europe. The European Health Insurance Card (EHIC) is a reciprocal scheme that entitles us to free or reduced-cost healthcare if we fall ill or have an accident while travelling in another EU country. As that country is then reimbursed by our own for the cost of our treatment, it means our travel insurers do not have to foot the bill for our healthcare abroad, keeping premiums low. Whether or not the UK remains part of this scheme depends upon whether we choose to leave the European Economic Area (EEA) as well as the EU. The EHIC is an EEA scheme so would still apply in the UK if we remain an EEA country. However, if we leave the EEA, we will probably cease to be covered by the scheme, and therefore our travel insurance premiums will rise.
The low value of sterling will scare holidaymakers
Following the referendum result, the value of the British pound has plummeted against the US dollar and the euro. This means our money is worth a lot less when travelling abroad, so pushes up the cost of our holidays. As a result, a lot of Brits are thinking twice about holidaying abroad, so there is less demand for travel insurance. Insurers are likely to push up their premiums in order to try and recoup the loss.
We might need legal expenses insurance, too
Certain laws that protect the rights of UK travellers in Europe are only entrenched in EU law, not British. There are two main laws that this applies to. The first is Air Passenger Rights. This is legal protection that allows you to claim compensation in the event of a flight out of an EU airport being cancelled or significantly delayed. The second is the Package Travel Directive 2015, which applies if you are injured in an accident while staying in a hotel in the EU. It allows you to sue the responsible party once you return to the UK, thus entitling you to UK compensation levels, which tend to be higher than those in the rest of Europe. (The same rules also apply, under EU law, to individuals, for example if you have a car accident while driving in Europe and the other party was at fault.) Current UK law only covers those who have booked package holidays, rather than travellers who have booked their hotels and flights separately. If the UK does not include these rights into its own laws following a Brexit, UK citizens travelling to Europe would be strongly advised to have legal expenses insurance in addition to their travel cover.
UK insurance companies abroad may have to relocate
Many UK insurers providing cheap travel insurance are able to do so by taking advantage of lower tax rates and prices in Europe by basing their operations there. They are currently allowed to do so because of the EU Passporting rule, which allows companies to be regulated by the country in which they base their operations. Once Britain begins negotiations to leave the EU, it is very likely that these companies will have to relocate their operations back to the UK. This means that their overheads will rise. If they want to continue to operate from bases in the EU, they are likely to have to get regulatory permission from each individual country in which they wish to operate, a process that can be both expensive and time-consuming. The costs involved in these options would be passed on to the consumer in the form of higher premiums.
London may no longer be seen as a viable base for global insurance companies
Currently, some insurance companies from countries outside the EU, such as the USA and some Asian countries, use London as their European base. Once Britain is no longer a member of the EU, they could cease to see the point of basing their operations in London, and choose to relocate to continental Europe. This will weaken the power of the UK insurance market in global terms, as the UK will no longer be seen as a global financial power. If trust falls, so will investment and profits, and premiums will rise as UK insurers attempt to compensate for this.
Competition may decrease
At present, many insurance companies from other European countries also offer their services to the UK market. While some have already said they will continue to do so following the UK’s vote to leave the EU, it remains to be seen how long this will continue to be the case once Brexit negotiations start. If these companies pull their services out of the UK, there will be less competition on the British market, and UK insurance companies can increase their prices due to the limited amount of consumer choice available. However, it is thought to be highly unlikely that European insurers will pull their business out of the UK, as Britain is the second largest insurance market in Europe. Monitoring the number companies offering quotes through a comparison site will be interesting over the next couple of years.
While it seems certain that travel insurance prices will rise for UK travellers once Britain cease to be part of the EU, it is extremely difficult to predict when and how much, as so much depends on what agreements the UK government can reach with Europe during Brexit negotiations. Until then, travel insurance policies you currently have remain valid, and according to industry insiders, there is no immediate need for alarm. Ida Luka-Lognone, chief executive of German insurance giant Allianz Worldwide Care, advises that, “Consumers shouldn’t panic now but they should look at all the options in the market today to be prepared for what could happen in two years’ time.”
Forewarned is forearmed, as they say.