UK: Travel Agents Likely To Face FSA Regulation For The First Time

Travel agents who sell travel insurance as part of a package holiday could be a step closer to FSA regulation, following the publication of a report by the Treasury Committee at the end of last month.

Currently, agencies (such as travel agents) that sell travel insurance alongside a holiday as part of a package ("bundled insurance") are exempt from FSA Regulation. Intermediaries who sell travel insurance outside the scope of that exemption (who must be authorised), and insurance companies that sell travel insurance directly ("standalone insurance") are subject to FSA’s ICOB rules.

In August last year Ed Balls, the Economic Secretary to the Treasury, launched a review of the different regulatory approach taken with bundled and standalone insurance in response to what the Treasury called "growing concerns from consumer groups and sections of the industry" that the travel insurance market was not "working as well as it could do".

Subsequently in November last year, the Treasury Committee launched its own inquiry into the scope of FSA insurance regulation, seeking submissions of evidence focussing on the need for, and potential effects of, extending regulation to the bundled travel insurance market.

To view the article in full, please see below:

Full Article

As part of its review, the Treasury Committee considered three potential options for future regulation of travel insurance

1. No regulation for bundled products (i.e. maintaining the status quo)
2. Industry self-regulation (i.e. strengthening industry codes (such as the ABTA code) to ensure customer protection)
3. Full FSA conduct of business regulation.

The Treasury Committee recommended that if the Government is satisfied that the FSA can deliver regulation that meets these requirements, it should extend the scope of FSA insurance regulation to cover the bundled travel insurance market.

The main conclusions of the report are summarised as follows:

• There is significant evidence of consumer detriment in the travel insurance market. Some consumers are being sold policies which do not meet their needs.

• Problems in the sales processes are likely to be accentuated when sales take place away from the professional regulated insurance environment.

• There is insufficient awareness of exclusions and areas such as terrorist acts and pre-existing medical conditions (including pregnancy) which are often buried in the small print.

• The insurance industry, those who sell travel insurance, regulators and the Government must work together to develop insurance policies that are summarised in plain English, provide clear and prominent information on exclusions and that are promoted to maximise the number of holidaymakers with proper travel insurance.

• A coherent and unified system of statutory regulation for the travel insurance market should be introduced. The FSA is best placed to deliver such a system.

The Treasury Committee’s recommendations have been generally welcomed by the insurance industry. However, the Association of British Travel Agents has argued that some of its agents would stop selling travel insurance due to the expense of adapting to FSA regulation. They suggest this would significantly reduce customer choice and lead to an increase in the numbers who travel abroad uninsured.

The results of the Treasury’s review are expected in the first half of this year.

Full Text Treasury Committee Report

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 19/03/2007.