Travel insurance hit by terrorism fears

Sales of annual travel insurance policies look set to be hit as the US terrorist strike puts people off travelling, a market analyst has warned.

Datamonitor says following last month's attacks there has been a 30% drop in international travel as flight restrictions and fears of terrorism cause people to stay at home.

It says this is likely to halt the growing popularity of annual insurance cover, as consumers are less likely to buy these policies if they no longer planned to go abroad as often.

Richard O'Donoghue, Datamonitor financial services analyst, said: "A pessimistic scenario for the travel insurance market could ensue if the tragic events in the United States continue to have an impact on airline travel.

"Furthermore, recession following on from the terrorist attacks and any ensuing conflict would mean that people have less money to travel and therefore decrease the number of holidays they take each year."

He added that a drop in foreign travel would strike a "severe blow" for direct insurance providers, such as Columbus Direct and Direct Line.

The travel insurance industry is still dominated by large insurers who sell policies through travel agents, with these groups accounting for about 60% of the market.

Direct insurers have about 15% of the market, but this figure is increasing at between 1% and 2% a year, with sales of annual policies rising at a faster rate than insurance sold through travel agents.

But Datamonitor said recent events may put people off travelling outside Europe, leading to an increase in the number of package holidays people take, and a rise in insurance policies sold through estate agents.

The group said even if events in the US had only a limited impact on people's holiday plans, the market was likely to see a slowdown in sales growth.