The Truth About Travel Insurance Prices
Canadian experts in the field of computation – actuarians, mathematicians, underwriters – convene in various parts of Canada between April and May of each year to go through policy documents, spreadsheets and claim records over the last five years and corresponding causes. The meeting aims to come up with the appropriate travel medical insurance prices for the next season.
Foreign exchange rate plays an important role in determining prices. Although you can use current exchange rates through “hedging,” but because this process usually cost more that $100,000, experts advise to focus on when actual claims will be paid. Clients will have to shoulder the burden should insurers decide to hedge the U.S. dollar – something which our travel insurance company has never done, much less considered. We would like to assume the risk on behalf of our clients for we believe this is every insurer's responsibility.
A carefully assessment of expert Canada-U.S. Dollar exchange rate forecasts led to the conclusion there was no consensus. Different experts came up with different predictions. While some economists predicted a par dollar, the rest foresaw figures of $0.70, $0.75, $0.80 and $0.91. Looking back, when the Canadian dollar was at an all-time low of $0.76 and peaked at $1.11, no one could predict when and where the high or low would hit.
Now here's something just a little bit daunting. Pricing policies at $1.11 may sound awesome, but if you look more closely, insurers would suffer a deficit of $8,297,771 all from paying claims of $20 million (because the dollar was at $0.76 when claims were paid). Some insurers do not take this too kindly and may feel like quitting the travel medical insurance business should they lose $8,000,000. If you add the U.S. medical inflation, delays, GHIP actual claims results and the surging number of claims to the mix, insurers may incur even greater losses.
Insurers should rejoice, though, if the currency moves in a different direction. Pricing policies at $0.76 is far more profitable, adding $8,297,771 to the insurer's income, particularly if the rate reaches $1.11. Through hedging the U.S. dollar in the amount of their projected claims, they get to collect their free $8 million when currency starts moving the other way. You can ask about your premium rate at your peril but a rough and safer estimate would be $400 higher per person.
Finding the right balance can be quite challenging. Travel insurance providers have to be in battle mode all the time to add more sense to the boxes that underwriters, mathematicians and actuarians are often trapped in. These individuals had to “pad” their rates for the sake of accuracy, perfection and maximum profit. Despite their high-end computations, they tend to miss out on a few safety nets. They could lose their careers for mishandling their employer's money. We have to face the reality that premium rates of $400 above are not easy to accept. Compromises and adjustments are therefore in order.
Replying to Manulife's query, economists lobbied for a $0.91 exchange for next year's claim season. This seemed reasonable for them. Medipac's senior employees thought $0.925 was more reasonable and, true enough, our forecast won. We had other factors to consider while deciding on the price. Rest assured, our famous Early Bird promo, our Loyalty Credits and our Claim Free Discounts will still be there.
It's rough to be always in battle mode but the travel insurance business in the 21st century just happens to be like that. The past was a little different but please do look forward to this year's travel insurance program. Join us and enjoy! Feel free to call 1-888-MEDIPAC.