how your travel insurance premium is calculated

have you ever wondered how travel insurers work out how much your policy is going to cost?

why, for example, your insurance for a two-week holiday to Turkey cost precisely £32.53 and not £32.54? or £33? and why is it less than half the price if you’re going to France? or £10 more if you’re going to the States?

these examples are a clue to how underwriters – the people who, in the official jargon, ‘establish pricing for accepted insurable risks’ – work out how much you will pay for your policy.

now, before your eyes glaze over, just think about what would happen if you were to break an arm while on holiday abroad.

would you rather?

would you rather it happen in France, which apparently has one of the best health systems in the world and a reciprocal health agreement with the UK (meaning you wouldn’t have to pay for most emergency treatments?) or in the USA, where even the simplest of medical procedures can come with its own personal string of noughts attached? it should be obvious by now that where you’re travelling to is very relevant to price – which in itself is a reflection of risk.

in simple terms, risk is the possibility of something bad happening. something bad that might involve a financial loss – i.e., without travel insurance, it could be you picking up the £32,500 bill for that broken ankle when you slipped and fell over in Mexico.

so, the first answer to the question: ‘how do travel insurers calculate premium?’ is that it’s partly about where you’re going. and about the risk involved in you going there.

now sunning yourself on a beach on the Costa del sol in Spain might not seem that risky – and we’d agree with you. so, if that’s all you plan to do, and you’re in good health with no pre-existing medical conditions then your policy is likely to be cheaper.

on the other hand, if you’re planning to spend the day parasailing and then jet skiing along the mediterranean sea, then the chances of you getting injured are a whole lot bigger and may lead to you needing to make a claim. so, travel insurers may ask you to pay a little more to cover this risk.

that’s how travel insurance works. it’s like a pot of money everyone pays into with those more likely to be taking money out putting more in. (actually, it’s a bit more complicated than that, but you get the general idea).

while this may seem simple, the challenge for all travel insurers and their underwriters is keeping the questions to a minimum while getting enough information to be able to work out the risk and potential cost should you have to make a claim. it may seem like we need a lot of detail, for example, trip duration, holiday destination, holiday cost and medical history, but it’s precisely this detail that allows travel insurance providers to work out the most cost-effective price for the protection against the unforeseen things that could happen while you’re away.

so, let’s run through the factors that can affect the price of your holiday insurance.

cost of the holiday: this falls under the ‘cancellation’ or ‘curtailment’ section of your policy and is the amount you can claim up to, should you need to cancel your trip or come home early. so, we need to know how much it cost. (and incidentally, if you have to make a claim, we need you to have receipts and invoices to support this.) so, if your holiday is expensive, say a two week five-star private villa holiday in the Maldives (about £10,000, since you ask) rather than a caravan site in France, then we’ll ask you to pay a bit more.

destination: where you’re going is one of the most important things we need to know when assessing your policy price. this is so we know how far away you are from the UK in case we have to get you home quickly in an emergency. it also gives us a heads up on the health care that would be available to you should you need it. 

if we need to get you back to the UK in an air ambulance or need you to be accompanied by a medic on your flight back, where you are in the world can make a big difference. it’s obviously going to cost more to get you back from Thailand than it would from across the channel.

if you’re travelling to Europe, most emergency medical expenses will be covered by an ehic or ghic card which means you may be entitled to discounted (or even free) emergency medical treatment. treatment standards and the associated costs can vary from country to country, which is why it’s good to have suitable cover in place.

age: how old you are can influence the price of your policy. naturally, as you get older, you may develop more medical conditions which means that you may need extra protection. underwriters keep a close eye on the age stats when they review pricing. different age groups can present different risks.

medical history: we ask about medical history because it gives us another indicator of how likely it is that you will have to claim. but it’s a lot more complicated than that. our medical screening tools are very sophisticated at working out the risk involved in insuring you. and you can read all about that (and it’s a fascinating topic) in our  medical screening piece.

duration: how long are you going away for? a backpacker on a gap year is a much bigger risk because they’re away for longer, often in multiple countries. in insurance jargon, how long is the insurer going to be exposed to the potential risk? the couple on a week’s camping trip to Brittany may be less of a risk. 

trip type: are you going on a single holiday or are you looking for cover for a number of trips over the course of a year - an annual multi-trip policy is what you need for this. more trips, more risk – although multi-trip policies are priced in a way that in some cases makes them a very attractive option, depending on where you’re travelling to.

group or solo traveller: are you looking to cover a family group or just yourself? more people. more risk. it’s that simple (sort of).

so there you have it. all these different factors can help to make up the price of your policy. there are other variables which are far too boring to go into here, but they include how you bought your policy and when you buy it. but the most important thing is to make sure you buy a policy that matches your holiday and travel needs.

and that’s what albert & eddie is all about. understanding what you need, then giving you the best policy to make sure you’ll most likely be covered if you were to make a claim.

clever. isn’t it?