Recently a “new” travel insurance web site was launched that promises discounted travel insurance with savings of up to 25% for coverages similar to those offered by other companies because they have eliminated the middle man and they are able to pass on the savings to the public. They actually show examples of plans that they offer and how they compare to plans available on the 3 leading travel insurance comparison web sites(CWS). In one example they show what their “Good” plan would cost for a person 76 years old going on a 17 day trip with a trip cost of $2,800. They also show cost for “similar” coverages offered by the 3 leading CWS with the conclusion that you can save up to 48% by buying the coverage from their site.
Sounds good but how accurate is it? Let’s take a look.
-
Are they comparing apples to apples? No. In this example they are comparing one plan from each of the web sites which implies that each plan is only available on the one specific comparison site. In reality all three of the comparison sites carry the same plans and it’s misleading to imply that the one price is only found on one site when you can find all three plans on each one of the sites.
-
Did they eliminate the middle man? No, the very company that maintains the web site and who is licensed to sell insurance is by most peoples definition the middle man.
-
Can insurance companies offer the same coverage at discounted rates? No. It’s usually considered a violation of insurance law to offer the same coverage for a discounted rate without having some statistical basis or a major difference in coverage to justify the rate difference.
-
Than how can a different insurance company offer the same coverage for a lower, discounted, rate? They can’t. Rates are a function of statistics (law of large numbers, probability, mortality, morbidity, etc) and where you see policies with that appears to offer the same coverage at a different price than you can reasonably expect the coverage is different which allows the company to charge different rates. If a plan claims that their price is 48% lower than that usually means they pay out fewer claims and why do they pay out fewer claims – it’s because their coverage is different.
Remember, look beyond the marketing hype and ask yourself why the premium is lower before you buy.