Unregulated travel insurance will continue to damage the reputation of the insurance industry, even after FSA regulation begins, according to the AA.

AA research showed that 60% of travellers buy their travel insurance through their travel agents, most doing so at the time of booking their holiday.

AA Insurance managing director Andrew Briscoe said the exemption of travel insurance sold by travel agents from FSA regulation would continue to damage the industry.

Briscoe said a major problem was the lack of awareness of the small print in policy documents, particularly the necessity of declaring pre-existing medical conditions, and how this might prevent them from making a successful claim.

He said a failed claim coloured a customer's perception of the industry as a whole.

"We welcome proper regulation of the industry by the FSA because it will help build customer confidence in insurance products and the way they are sold.

"But the exemption of travel agents from regulation is a glaring omission that could undermine the good work being carried out by the FSA," said Briscoe.