Is travel insurance next on the FCA’s radar?

The start of 2024 has left the insurance industry with no doubt in its collective mind that the FCA is taking Consumer Duty seriously – and that the regulator is prepared to come down hard on those that are not.

The regulator has already acted to halt the sale of guaranteed asset protection (Gap) insurance, with its executive director of consumers and competition Sheldon Mills stating quite firmly in March 2024 that Gap insurance “does not offer value” in its current form.

Meanwhile, the FCA’s director of general insurance and conduct specialists, Matt Brewis, has openly spoken about how premium finance is also in the regulator’s sights – including in panel discussions at Insurance Times’ own Broker CEO Forum event.

But which other products could be on the FCA’s radar? And what would potential changes mean for the insurance industry?

Quality concerns

For James Daley, managing director of consumer group Fairer Finance, the travel insurance market is one area he is particularly concerned about the FCA homing in on.

“Day one of Consumer Duty is about focusing on the quick wins – where the FCA can send a message to [the] industry,” he said.

“In insurance, the starting point has been the Gap insurance market and we know that it’s likely other areas with very low claims ratios will also be high on the FCA’s list.

“In travel, the picture is more complex, but there are some serious problems in this market and it’s a matter of time before the FCA turns [its] attention to [this line of business].”

Aviva’s head of home and lifestyle, Carolyn Scott, added that travel insurance is very different to the cover provided by Gap and, as such, should be viewed differently.

“While Gap policies provide insurance in a specific scenario, travel insurance offers a wide range of covers to give reassurance to holidaymakers for a number of circumstances – including cancellation, delay, lost or stolen baggage and medical expenses,” she explained.

“Travel insurance can prove vital to travellers if they fall ill on holiday or have to cancel their holiday in advance – for example, due to a family bereavement.”

But Daley noted that the problem with travel insurance is that the market is so mixed when it comes to quality.

“There are excellent policies that cover everything you might hope and expect, but there are many that are riddled with caveats,” he said.

“We’ve seen cases where insurers penny pinch at [the] claims stage, sometimes making ill customers move hospitals, or even denying them repatriation to the UK when that may be in their best interests.”

The variation in the levels of cover available also makes it difficult for consumers to understand what they are buying, as well as which risks they may still be exposed to if they don’t find the right level of cover.

“There are many policies that don’t cover areas that consumers might expect them to,” Daley said.

“So, there are big gaps in coverage – and many consumers buy policies and remain blissfully ignorant of these omissions.

“These policies are not, to my mind, offering fair value.”

Scott, however, pointed to the latest set of value measures data from the FCA. Covering the reporting period between January to December 2022, this data was published in September 2023.

The statistics found that claims frequencies for travel insurance policies are comparable with those for the motor market.

Scott added that travel insurance is a vital layer of protection for holidaymakers – Aviva regularly reviews the value offered by its policies, she noted.

“Without travel insurance, many holidaymakers could face significant bills, running into the tens of thousands or more – particularly if medical treatment is required,” she said.

“Providing good customer outcomes has always been a focus for us and we constantly review our products to ensure they offer fair value to customers.”

One big area of concern in the travel market – and something that has become of increasing regulatory importance since Consumer Duty came into effect in July 2023 – is the treatment of vulnerable customers.

“Travel insurance can get very expensive for people with certain conditions and there’s a question as to whether insurers are always offering fair value here,” Daley said.

“Some simply price high because they don’t have enough data to price accurately and the Biba signposting project does not seem to have done enough to solve these problems.”

A ‘clearer and fairer’ marketplace

But what action could the regulator take if it does deem travel insurance to not be offering fair value?

It is almost impossible that the FCA would consider halting the sale of travel insurance en masse – it is, of course, a vital product that offers protection for millions of holidaymakers every year.

However, this action could be used on a more targeted basis if the FCA deemed certain players to be substantially outside the levels required by Consumer Duty.

Fines could be a possibility, although the regulator is still yet to decide on whether to adopt that approach for the Gap insurance market, so any regulatory fines will still be some way off if they are to materialise.

For Daley, enforcing fair value should be about the FCA introducing minimum standards that can help to improve the overall value of travel insurance and close the gap between customer expectations and the reality of cover.

“Hopefully regulatory action will create a market which is clearer and fairer,” he said. “It may push prices up at the bottom end of the market, but I don’t think that would be a disaster.

“Travel insurance is cheap – and I’ve heard people in the industry say things like ‘what do consumers expect from something that’s so cheap?’”

Daley explained that the industry needs to move away from this perspective of what ‘cheap’ policies can deliver and instead create products where people can clearly understand what is and isn’t covered by a policy.

He warned that there is still “a long way to go” to truly achieve fair value for insurance customers.