It’s important to qualify this kind of statement before we dive into the meat of an argument. What a company or an industry “should” do is often different from what it does do: and besides there is a very real sense in which what companies do do is actually what they ought to do.

To understand this you have to think carefully about the role played by an insurance company, or indeed by any company, within its market. Essentially the job of an insurance company is to make money for its stakeholders. If it fails to do this, then it is not operating properly within the confines of how insurance companies ought to act.

So whether low cost travel insurance should be offered to adventure travellers depends very much on the sense in which the whole question is posed. For instance, if we are to assume that a low cost insurance policy should be offered to regular adventure travellers as a sort of loyalty bonus, then we have to look at whether or not an insurance company should reward loyalty.

The Insurance Company and the Frequent Customer

The concept of loyalty bonuses is normally used as an incentive for customers to become frequent customers. In other words: if an insurance company offers cheap travel insurance to people who use it regularly when booking their travel insurance, then it is statistically likely that those people will continue to use it when booking future travel insurance. The lower cost offrequent use breeds more frequent use, from people already disposed to make that kind of usage of a company’s services.

This idea of creating an incentive whose likely take up rate is already semi ratified by the existence of a current market, is central to the whole purpose of loyalty reward schemes. There’s no point, for example, in rewarding people who frequently go on adventure travel trips with something they aren’t going to use – say, some free shopping in a UK supermarket – because they won’t see the incentive as applicable to the reason why the make use of the incentivising company in the first place.

An incentive may incur some kind of cost, in this case the amount insurance companies no longer make by dropping prices to their frequent users. However, the accepted wisdom is that this cost or loss will be recouped and more by the extra money made from increased custom.

To understand whether low cost travel insurance should be offered to regular adventure travellers, then, it’s necessary to look at how much more money the insurance company stands to make by creating a loyalty scheme, than it stands to lose by doing the same thing.

Insurance Companies and the Concept of Risk

Risk is at the heart of all insurance. An insurance company decides whether, and how, to insure a person by calculating the likelihood of things happening to that person, for which the company must pay compensation.

Because of this, we must also examine what we mean by “adventure traveller”; and whether by being an adventure traveller as opposed to a normal traveller a person is likely to incur more risks.

Adventure Travel

It is reasonable to assume that adventure travel is a riskier business than simply going to a different country for a defined period of time. The implication in the word “adventure” is that a person travels abroad specifically to do things that would be considered dangerous, when compared to the kinds of things a person might normally do on holiday. An example of this might be that the “adventure traveller” intends to go trekking in a jungle, or to engage in some form of endurance or adrenaline sport. Or it could be that the person in question aims to go to remote and potentially dangerous places.

By this logic, an insurance company may already be charging higher premiums for adventure travel. So to drop those premiums for repeat adventure travel begs the question of how much the original premium is really based on calculated risk.

Lisa jane is a risk analyst at Stamford University. She is looking at adventure travel insurance for a thesis and has been using as a reference.