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Outlook for Canadian Travel InsuranceSeptember 20, 2005

David Redekop, Principal Research Associate, The Conference Board of Canadadredekop@conferenceboard.ca

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Presentation Outline

1. Travellers of the future2. Changes in where Canadians are traveling3. Travel forecasts & issues

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Summer Outbound Leisure Travel(’000 of outbound summer [April through Sept.] leisure trips each year)

6800

7000

7200

7400

7600

7800

8000

8200

8400

2000 2001 2002 2003 2004

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Visitors to Canada: Rebound but not as strong, still below 1996 level

4,377 4,2343,935

4,1874,366

4,0103,796

3,188

3,9174,117

4,335

1000

1500

2000

2500

3000

3500

4000

4500

5000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

( ‘000 of 1+ night overseas foreigner person-trips to Canada)

Source: Historical Statistics Canada; forecast CBoC.

SARS

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Canadian outbound travel on a strong rebound after 3 years of difficulty

15,934 16,057

14,34514,999

15,66315,006 15,103 15,229

16,827

18,089

18,922

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

( ‘000 of outbound leisure trips by Canadians)

Source: Historical Statistics Canada; forecast CBoC.

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Yet outbound leisure trips still not at 1991 level

18,922

19,516

1991 2006

( ‘000 of outbound leisure trips by Canadians)

Source: 1991 Statistics Canada; forecast CBoC.

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Economic, demographic and travel industry changes will continue support growth in

outbound leisure travel

However, which Canadians are traveling, where they are going and what they are

doing has changed significantly

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Travelers will be:

older, travel farther, stay longer

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Future travel insurance customers(Canadian population growth‘000 in 2001 and 2011)

7,900

2,917

3,935

8,291

2,264

4,596

5,319

4,663

3,382

4,846

2,097

4,353 4,500

5,301

19 and Under 20 TO 24 25 TO 34 35 TO 44 45 TO 54 55 TO 64 65 AND OVER

2001

2011

Source: Statistics Canada

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Future travel insurance customers(Overseas trips in 2004 and 2011 by age group)

587,566

1,010,938

1,169,265

872,967

722,100

1,008,500

405,900

182,700

556,500

975,600

712,500714,919

197,250

425,989

<19 20 TO 24 25 TO 34 35 TO 44 45 TO 54 55 TO 64 65 +

Trips in 2004Trips in 2011

Source: Statistics Canada

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Future travel insurance customers(% change in overseas trips between 2004 and 2011 by age group)

7%

21%

16%

5%

8%

6%

4%

0%

19 andUnder

20 TO 24 25 TO 34 35 TO 44 45 TO 54 55 TO 64 65 ANDOVER

Total

Source: Statistics Canada

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Less US, more Asia & Caribbean

7.7%6.6%

5.0% 4.9% 4.5%3.9%

1.6%

-3.4%-0.3%

Asia Caribbean OtherEurope

Africa CentralAmerica

Mexico Europe SouthAmerica

US

Average annual rate of growth in Canadian visits between 1990 and 2003.

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US losing share of Canadian outbound leisure trips

(% share of Canadian pleasure trips by year) 87%

13%

67%

33%

US pleasure trips Non-US pleasure trips

19912003

Source: Statistics Canada.

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Asia rebounded sharply 1 year following SARS(% change in # of Canadian visitors, 2004 vs 2003 and 2003 vs 2002)

-4.0% -4.2%

-29.5%

-20.9%

9.9% 12.7%

46.6%51.1%

Thailand Japan Hong Kong China

2003 vs 20022004 vs 2003

Source: Respective tourist boards/authorities

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Capacity to China up 58%(Number of planned direct seats, by carrier, from Canada to China)

• Planned direct seat capacity from Canada to China is up by 58% for summer 2005.

• All three carriers have boosted capacity with China East increasing seat capacity the most – some 243%.

• China Eastern Airlines began service from Vancouver to China in June 2004.

121,468

208,826

May to Oct. '03 May to Oct. '05

Source: OAG.

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Emerging Travel Destinations• Eastern Europe – borders opened up, $ flowing into

building tourism infrastructure,• Asia – appetite for travel to “exotic” destinations has

been growing for last 10 years.• Central America – Caribbean going up-market while

Central American countries eager to build tourism industry.

• Underperformers with lots of potential – Africa & Middle East

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Insurance risk nights more than double for travel to non-US destinations

8.2

16.9

US Non-US

(Average # of nights spent while traveling for leisure purposes, 2003)

Source: Statistics Canada.

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Insurance risk nights between US & non-US will be about equal in 2005

1998 1999 2000 2001 2002 2003 2004 2005

US NonUs

US Risk Nights

Non-US Risk Nights

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WHTI will impact travel to US

• Western Hemisphere Travel Initiative requiring passports to travel to the US will hit discretionary auto travel the most.

• More level playing field – US no longer has “passport not needed advantage”

• Renewed confidence in outbound travel favours less traditional destinations such as Asia, Central America, Eastern Europe

20Total Loss in Trips & $(between 2005 and 2008 due to WHTI)

$785,000

2,569,000

Total trips lost Total $ '000 lost

Source: CBoC TRIP model

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Winter Vacation Intentions(% indicating Yes/Probably would take a winter vacation trip)

Canadian intentions to take a winter vacation fell somewhat in our June survey to 45% compared with 48% a year ago. A drop in the intentions to take a winter vacation in Canada was the main reason for the drop in the overall level of vacation intentions.

33%

42% 42%48%

45%

0%

10%

20%

30%

40%

50%

60%

June'01

June'02

June'03

June'04

June'05

Yes & Probably

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Steady increase in winter outbound trips planned

(# of Canadians intending to take an outbound winter vacation trip, June survey each year)

4,102,633

6,841,955

2001/02 2005/06

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More uncertainty about outbound destination

(% that did not know which destination in Canada, US or Other Int’l they would visit)

1.3% 2.0%

8.3%

1.8% 2.4%

18.6%

Canada US Other

2002 2005

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Air travel at normal level(% intending travel to US by car and air on winter trip, June each year)

42%

51%

35%

62%

Car Air

20022005

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Most outbound travelers have high-speed Internet connection

75%69%

77% 77%

Travellers with Internet connection Highspeed connection

20042005

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Travel insurance

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Premiums have grown: Average premiums for individual trip policies each year

$55.58$61.53 $59.32

$64.44 $68.20 $68.72

$81.82

$66.48

1996 1997 1998 1999 2000 2001 2002-03 2004 Premium =CPI

Growth

?

Source: CBoC travel insurance industry survey each year

Industry surveynot donein 2002 & 2003

+19%

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Travel insurance policy sales(‘000 of individual trip travel health insurance sales to Canadians)

3,737

2,858 2,835 2,9442,639 2,539 2,544

3,1873,420 3,550

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

29Travel insurance ½+$ billion market

($ millions in premiums)

$199.9

$117.2 $107.2

$260.7

$103.6

$139.8

Individual Annual Trip Cancellation*

20002004

Source: The Conference Board of Canada Travel Health Insurance Monitor.* Trip Cancellation figure does not include for domestic trips

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Ontario home to nearly 4 in 10 travel insurance buyers

(% of individual & annual premiums sold by province/region)

25%22%

10%

3%

37%

2.5%

Ontario BC Quebec Alberta Man./Sask Atlantic

Source: CBoC travel insurance industry survey, 2004

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Growth in snowbird trips(‘000 of Canadian Snowbirds 55+, trips of 30+ nights)

457 441 433489 478

526

610654

687

1998 1999 2000 2001 2002 2003 2004 2005 2006

7.2%

Source: Historical Statistics Canada; forecast CBoC.

5%

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Are we seeing the beginning of the end of provinces providing coverage of out-of-

country medical services??

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Romanow report: out-of-country coverage not an entitlement

Recommendation 5 of the "Romanow report" regarding the portability of medical services under the Canada Health Act states that out-of-country

coverage for insured health services "be considered a benefit if provinces choose to provide it but not entitlement under the Canada Health Act” and that “the portability provisions of the Act be limited to

supporting mobility within Canada.”

"Building on Values: The Future of Health Care in Canada" Commission on the Future of Health Care in Canada, November 2002.

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$ Millions in payments by Provinces for out-of-country medical services

$69$76

$84

2003 2004 2007

Source: Historical Canada Health Act Annual Reports with Quebec estimated. Forecast CBoC

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Ontario: Payments for out-of-country insured physician services

($ millions)

$7.0

$11.6

$15.5

$8.2

$10.2 $9.9

1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004

Source: Canada Health Act Annual Reports

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THIA responsibility?Perhaps THIA should consider making representation to the appropriate officials in response to the Romanow report that the Canadian travel insurance industry, having a long and respectable record in servicing the out-of-country medical insurance requirements of Canadians, is ready & willing to assume a greater role in protecting Canadian outbound travelers and at the same time, reduce the growing financial burden facing all provincial governments to adequately fund health services.

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Wrapping up

• Survived the worse 3 years in the history of the travel industry since WWII.

• Changes in who is traveling and where will mean risk nights to non-US destinations will exceed risk nights to the US in 2005 and beyond.

• Governments looking for ways to better manage funding the growth in health care costs as the Canadian population ages.

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Thank you!