Tighter regulation of travel agency insurance sales

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In 2006, the Treasury launched a review into the selling of travel insurance by the travel trade. The report, published last month, identified several shortcomings within the current regulatory system, and recommended that the sale of travel insurance be more closely controlled.

According to research carried out in 2007 for the British Insurance Brokers Association (BIBA), 27% of us buy our travel insurance via a travel agent or tour operator. Currently, the sale of travel insurance alongside a flight or holiday is not regulated by the Financial Services Authority (FSA), although some self-regulation exists in the form of the ABTA Code of Conduct and the AiTO's Code of Business Practice. The review was sparked by concern over this lack of compulsory regulation, and by reports of mis-selling and inadequate explanation by the travel trade. Price and convenience are important factors for customers, but travel agents and tour operators don't necessarily offer good value. The review cites several examples of inappropriate or inadequate policies being sold to consumers, who were then unable to make a claim.

Consumers who buy stand-alone travel insurance policies from an insurance company, a bank or even a supermarket, can be safe in the knowledge that the provider is regulated by the FSA. These customers can also complain to the Financial Ombudsman Service and the Financial Services Compensation Scheme should anything go wrong: not so with travel insurance sold through your travel agent, where no such protection applies.

The review provides evidence that sellers exempt from FSA regulation are less likely to:

The new proposals would require travel agents and tour operators to comply with FSA regulations by 2009. Travel companies would have to apply to the FSA to be authorised to sell insurance. Authorisation is expensive, especially for small firms, and the selling process would also involve more paperwork. The extra time and money needed for compliance may force many businesses to stop offering insurance.

With holiday insurance worth £670 million in 2006 to ABTA members alone, some may look at the other, less costly, options allowed under the scheme. These include becoming an appointed representative (AR) to an insurance broker, something which insurers may not be keen to do given the financial and legal liabilities of such an arrangement. Secondly, agents can refer customers on to a regulated firm in return for a commission. A final, though less lucrative, option would be to provide travel insurance information to customers without actually selling a product.

Sean Worth, from the Association of British Insurers, wants travel agents to continue selling insurance for uncomplicated trips. We don't want regulation to be more burdensome than it is now. We don't want fewer people selling travel insurance."

So what does this mean for the consumer? Regulation will hopefully reduce the number of policies which are mis-sold to customers, and ensure travellers get the right cover for their needs. The research carried out for BIBA found, for example, that 42% of those buying insurance from the travel trade were advised about hazardous sports, compared with 67% of those buying from insurance brokers. 72% of those buying from unregulated sources were given inadequate information about terrorism exclusions, whereas only 48% of regulated firms did not inform their clients about this. Buying your travel insurance alongside your holiday may seem like the cheap and convenient option, but until the new regulations come into force it may pay to go direct - both financially and in terms of product confidence.


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