Select Committee on Treasury Fourth Report

5  Conclusions

The extent of cover and consumer information

39. The starting point for any approach to the future of travel insurance and its regulation must be the needs of consumers. Around 20 million consumers purchase travel insurance each year. Although our initial focus was on the "bundled" travel insurance market, we have received evidence indicating that there are challenges for the travel insurance industry and those who sell policies in their dealings with consumers which do not relate exclusively to that market. Consumers are at risk of being sold travel insurance policies which do not meet their needs. We are especially concerned that there is insufficient awareness of exclusions in areas such as terrorist acts and pre-existing medical conditions including pregnancy, and in particular by evidence that around ten million United Kingdom holidaymakers in 2006 would not have been covered for medical expenses in the event of terrorist incidents. Such exclusions reduce the actual level of protection provided to holidaymakers when they are abroad or travelling. This has potentially serious consequences for holidaymakers, who are risking damage to their health or considerable financial loss if they require treatment while abroad or repatriation to the United Kingdom.

40. Overcoming this consumer detriment is a challenge for the insurance industry, for all those who sell travel insurance and for those who regulate them. We have received evidence about problems arising from limited consumer understanding of the complex nature of the travel insurance product—whether sold directly or via an intermediary. All too often, exclusions are buried in the small print of policies. Policies are complex and incomprehensible to the consumer, so that they are unable to understand whether they are covered for relevant circumstances. The problem of exclusions buried in the small print are not unique to travel insurance, but must be addressed as part of any consideration of the future promotion and regulation of travel insurance. In responding to the challenge, the insurance industry, those who sell travel insurance, the Government and the FSA must work together 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. Such discussions should include consideration of the benefits of the introduction of a comprehensible standard contract so that consumers can make reasonable assumptions about what will normally be excluded or included in their cover.

The regulation of bundled travel insurance

41. Although some of the challenges for the travel insurance sector are common to both bundled and standalone products, there is evidence to suggest that the 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. Given the evidence of the weakness of the sales process within the bundled travel insurance market, we do not believe that there is a convincing case for the maintenance of self-regulation in that market. The fact that the ABTA Code of Conduct is not part of an OFT-approved scheme, albeit for reasons unconnected with the sale of travel insurance, does not inspire us with confidence about the prospects of progress through voluntary self-regulation. 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. The FSA has relevant expertise in the regulation of the sale of financial products. Although we are sensitive to the FSA's understandable concerns about the extension of its remit, we believe that the costs of regulation would be greater if carried out by a new body.

42. 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.

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Prepared 25 February 2007