Greater protection for ‘bundled’ cover

Customers who buy travel insurance as part of a package holiday could be one step closer to better consumer protection following the publication of a report by the Treasury select committee last Sunday.

The committee recommends that all travel insurance regulation comes under the umbrella of the Financial Services Authority to improve weak selling practices. But critics are warning that such a move may result in too much red tape for insurance sellers and reduced choice for the consumer.

Last year, UK holidaymakers took more than 42m holidays abroad and more than half of all travel insurance policies purchased were bought alongside a package holiday.

The committee looked into how travel insurance is sold in the UK and found that customers who bought insurance through an intermediary such as a travel agent or tour operator were more at risk of being sold policies that did not meet their needs.

It is this type of insurance, known in the industry as bundled insurance because it is sold alongside another product, that the committee recommends be brought under FSA regulation.

Bundled travel insurance is not currently covered by the FSA after the Treasury decided in 2003 that travel insurance sold as part of a package could be adequately covered by the travel industry’s own regulations. As a result, when the FSA took over regulation of the general insurance market in January 2005, bundled travel insurance remained outside its remit.

But in August 2006 Ed Balls, economic secretary to the Treasury, announced that the Treasury would review the sale of travel insurance following complaints made to consumer watchdogs of misselling. The results of this review, which could be influenced by the select committee’s report, are due soon.

FSA regulation of all travel agent insurance should mean better protection for consumers if anything goes wrong and more clarity of policy specifications from sales agents. The committee found that travel insurance policies often contained exclusions hidden in the small print, which customers were not aware of, such as exclusions related to terrorism and pre-existing medical conditions.

Some 10m holidaymakers took out insurance that would not pay out any expenses in the event of a terrorist act. Other policies would not meet costs for any medical attention required for a condition that existed before the trip was undertaken, including pregnancy.

Regulation of all travel insurance by the FSA would provide customers with a fair and independent dispute resolution service, which is binding on the travel agents, says the British Insurance Brokers Association (Biba).

As the FSA already covers the rest of the insurance market Biba believes it is best placed to take on travel insurance regulation.

“There is a real demand for the introduction of these regulations,” says Graeme Trudgill, technical services manager at Biba. “It is essential that all customers understand the limits of their policies.”

The Association of British Travel Agents (ABTA) disagrees with the committee’s findings and hopes that the Treasury will not extend regulation as far as the FSA.

Such a huge change would prove to be onerous and expensive for ABTA members, says the trade body, and could reduce the number of agents selling insurance. This, they say, might increase the number of holidaymakers who travel without any protection. “FSA regulation could only lead to more travellers being put at risk,” says chief executive Mark Tanzer.

The Association of British Insurers is also not in favour of the FSA taking over regulation and agrees that this might lead some travel agents and tour operators to stop selling insurance.

“The committee is wrong to call for a crackdown,” says Nick Starling, director of general insurance at ABI. “They have produced little or no evidence to support their call.”

He disagrees with the idea that cover for acts of terrorism should be compulsory in all policies as he thinks consumers should be allowed to pick and choose the right policy for them.

Some customers, especially those taking short trips abroad, may wish to take out only the bare minimum cover, according to the ABI.

Considerations such as the free European Health Insurance Card, which entitles the holder to reduced-cost, sometimes free, medical assistance in EU countries, can reduce the need of certain types of insurance.

The ABI would like to see bundled travel insurance regulated in a similar way to extended warranties and covered by the Financial Ombudsman Service.

Whether the FSA takes on regulation of all travel insurance, or the industry self-regulation is strengthened, a change in how bundled travel insurance is sold seems likely.

Advantage, the UK’s largest network of travel agents, has already launched a scheme in conjunction with Cover-More, an FSA-licensed insurer, to give its members FSA accreditation.