Forum Brief: Travel insurance

The sale of travel insurance has been granted an exemption from the new regulations for general insurance, which are to be implemented by the Treasury in January.

In a consultation paper published on Thursday, chief secretary to the Treasury Paul Boateng said that as there was "no evidence of systemic mis-selling of travel insurance...any benefits of regulation would be substantially outweighed by the costs of implementation".

Forum Response: Direct Line

A spokesman for Direct Line told ePolitix.com: "This decision is bad news for consumers and the industry alike, despite growing evidence that mis-selling of travel insurance is rife amongst travel agents, the government has decided not to regulate this part of the market at all.

"Consumers will be denied the protection they deserve and the reputation of travel insurance, whether sold by a travel agent or direct seller, will suffer as a result. Travel insurance is a complex financial service, not a holiday 'add-on'.

"Not only does a lack of full regulation continue to leave the customer susceptible to being sold inadequate travel cover, but the variances in the way it is sold across the industry will simply leave the consumer confused. A level playing field for the entire travel insurance industry is the only answer."

Forum Response: Consumers' Association

Mike Naylor, senior researcher at Which? magazine, said: "The decision defies logic. It doesn't make any sense that the level of protection you get against mis-selling is dependent on where you choose to buy your travel insurance.

"The Treasury's assertion that no evidence of mis-selling was provided during the consultation process is unfounded. Our Which? report exposing extensive mis-selling was sent to the Treasury as part of its consultation.

"The Treasury's half baked approach will leave thousands of consumers at risk of going on holiday without being properly covered. In light of this we are calling on consumers to avoid buying insurance from travel agents.

Forum Response: Association of British Insurers

A spokesman for the ABI said: "We are disappointed with this decision. More than 12 million people a year buy travel insurance through travel agents and tour operators. Excluding these sales from regulation will lead to confusion for customers and a two tier system of regulation.

"There will also be higher compliance costs for regulated providers, so encouraging unregulated sales. This distortion will erode consumer choice."

Forum Response: Norwich Union

A spokesman for Norwich Union told ePolitix.com: "Broadly speaking we are not surprised by the contents of the Treasury's announcement and while the travel decision is disappointing it is not unexpected. It should be borne in mind that not regulating travel agents you create an unlevel playing field in the travel market with insurers and intermediaries having the additional burden and cost of regulation to deal with.

"The claims handling decision represents a proportionate approach. It places the onus on insurers to ensure arrangements with outsourcers are in place to handle claims in accordance with future FSA standards.

"We welcome the introduction of an appointed representatives (AR) regime which provides insurers with additional distribution flexibility. The decision to extend the activities of an AR removes one of the barriers to its utilisation; however, the difficulties outlined in response to CP159 (substitutable categories, inter-principal agreements, etc) still remain unresolved."

Forum Response: General Insurance Standards Council

A spokeswoman for GISC told ePolitix.com: "GISC welcomes the clarification from HM Treasury concerning the future statutory regulation of general insurance intermediaries.

"The Appointed Representatives regime is to be extended to general insurance intermediaries and ARs are to be permitted to conclude contracts of insurance.

"All insurance backed warranties (except those in respect of electrical goods which are the subject of an OFT investigation) are to be regulated.

"Travel insurance sold as part of a holiday package will not be regulated (subject to review in 2007).

"The views of GISC have been expressed in detail in our response to the Treasury Consultation and is publicly available on our website, item no 42 under All GISC Documents.

"The consequence of the decision regarding travel insurance is that unregulated distributors of travel insurance will not have to join the Financial Ombudsman Service. Customers who buy their cover through such unregulated businesses may therefore not have the benefit and protection of the Financial Ombudsman Service in respect of any advice and information given by the distributor. They will, however, still be able to bring a complaint about the ultimate insurer themselves for an assessment by the Ombudsman.

"These decisions add clarity to the developing framework for those businesses facing the introduction of statutory regulation in January 2005, and give FSA a definite foundation on which to develop its rules. Meanwhile many businesses involved in the distribution of general insurance products will now be able to plan their commercial strategy for statutory regulation with greater certainty.

"GISC applauds the government's commitment to consult on giving the Financial Ombudsman Service powers to deal with customer complaints arising after FSA regulation is introduced, but which refer to insurance products bought prior to the introduction of regulation. If implemented such an arrangement would give consumers important continuity of protection.

"Meanwhile GISC will, with the full support of HM Treasury and FSA, continue its role as the self-regulatory body for general insurance until January 2005 when FSA takes over. GISC is undertaking extensive work with its members to assist them in preparing for application to FSA for authorisation and in developing their commitment to compliance."