Holidaymakers are at risk if they go abroad without travel insurance or without adequate cover from the policy that they have chosen. United Kingdom citizens undertake over 60 million visits abroad each year, of which around two-thirds are holidays. It is clear that significant numbers of those travellers are not covered in the way they need to be for accidents and other problems while on holiday.
Around 20 million consumers purchase travel insurance each year. We examine the different ways in which such travel insurance is sold and regulated. We also look at the changing regulatory environment for general insurance as a whole, welcoming trends in the approach to regulation by the Financial Services Authority.
We conclude that there is significant evidence of consumer detriment in the travel insurance market. Consumers are at risk of being sold policies which do not meet their needs. There is insufficient awareness of exclusions in areas such as terrorist acts and pre-existing medical conditions including pregnancy; we are particularly concerned at evidence that around 10 million United Kingdom holidaymakers in 2006 would not have been covered for medical expenses in the event of terrorist incidents. All too often, exclusions are buried in the small print of policies. Holidaymakers are risking damage to their health or considerable financial loss if they require treatment while abroad or repatriation to the United Kingdom.
Overcoming this consumer detriment is a challenge for the insurance industry, for all those who sell travel insurance and for those who regulate them. They must work together with the Government to develop insurance policies that are summarised in plain English, that provide clear and prominent information on exclusions and that are promoted in such a way as to maximise the number of holidaymakers with proper coverage through travel insurance.
In the context of meeting the challenges that face the travel insurance industry and those who sell travel insurance, we observe that there is evidence to suggest that problems in the sales process are likely to be accentuated when sales take place away from the professional regulated insurance environment through an intermediary such as a travel agent ("bundled" travel insurance). We see merit in the introduction of a coherent and unified system of statutory regulation for the travel insurance market and we believe that the FSA is best-placed to deliver such a system. If the FSA were to assume these additional responsibilities, it would need to ensure that regulation across the travel insurance market was consistent, principles-based and risk-based. We recommend that, if the Government is satisfied that the FSA can deliver regulation that meets these requirements, it extend the scope of FSA insurance regulation to cover the bundled travel insurance market.