Lobbyists warn that distribution will dry up if European reforms go ahead as planned

Car rental and leasing firms warn that they will stop distributing personal accident insurance, opening up a huge gap in the market, if Europe pushes through stricter regulation.

At present, rental and leasing firms are exempt from FSA regulation when selling over-the-counter personal accident insurance (PAI).

But the European Commission is seeking industry views. This may lead to a formal consultation later this year to consider making PAI subject to FSA rules.

The British Vehicle Renting and Leasing Association (BVRLA) says a survey of its trade body members revealed they would quit PAI in the face of stricter regulation.

Head of legal services Jay Palmer said: “We know that members have made it abundantly clear that if the cost of regulation were to come in, it would make it unprofitable for them to sell PAI.”

Palmer said the BVRLA would lobby hard in Europe on the reforms.

The Commission believes there is too wide a variation in regulation of leasing and rental cars across Europe, breaching the ethos of a single market.

Palmer said the ultimate loser would be the customer. He said: “They potentially would not be able to get cover, unless there is a provider out there that will cover those eventualities. There may well be one, but we know that certain insurance firms have tiptoed into the market and found it unprofitable.”

However, the chief executive of underwriting agency Halo Insurance Services, Ernesto Suarez, said: “Will the regulation benefit us? It should do – but I’m not counting on it and I’m growing my business without it.

“The brokers do not see this as a market but there is a lot of opportunity for people like us.”

Halo is a new player to the private vehicle market, but currently offers personal accident insurance, and excess of loss.

It recently signed an agreement this month to supply products on SSP’s Keychoice Network.

Suarez said the Commission may force car rental and leasing firms to have FSA regulation for their excess of loss packages, which are currently deemed as contractual waivers.

The market could be worth as much as £115m in gross written premium.