Nick Starling says the crackdown on travel agents selling travel insurance that MPs want is too burdensome
The recent call from the Treasury Select Committee for a "holiday insurance crackdown" takes a sledgehammer to crack a nut approach to the regulation of travel insurance. The sledgehammer is the recommendation that travel insurance sold through tour operators and travel agents be regulated by the FSA; the nut is the low risk of customer detriment in a competitive travel insurance market.
The committee focuses on "the huge numbers of people, millions literally, who have been sold and are at risk of being sold in the future, travel insurance policies that do not meet their needs".
But it has produced little evidence to support this. The risk of customers getting a bad deal is very low. Of the 15 million policies sold last year, only a very small number generated complaints. This is against a backdrop of the £4m paid out by travel insurers in claims every week.
The committee also implied that terrorism cover should be made compulsory. In reality, cover for medical expenses as a result of injury suffered in a terrorist incident is freely available for those who want it. Over half of travel policies now provide this cover. It's about choice – and we believe that customers should have the choice to shop around for the cover that best suits their needs.
We recognise as an obvious anomaly that needs to be addressed the fact that tour operators and travel agents selling travel insurance are not, unlike insurers, regulated. It cannot be right that the customer gets different levels of consumer protection depending on where they buy their travel insurance.
We believe that the current FSA regulatory regime for travel insurance is too burdensome, and want to see a lighter touch approach with equivalent protection wherever customers buy their travel cover. Heavy regulation could reduce the number of outlets. Less customer choice could lead to more people travelling without cover – something that nobody, the Treasury committee included, wants.
Effective regulation of travel operators and agents can best be achieved by supervision through local authority trading standards. These localised bodies are better placed to regulate high street outlets and could more easily absorb the number of agents involved. This system already works in regulating extended warranty sales.
And by extending the Financial Ombudsman Service to cover these sales we would achieve a consistent level of customer protection across the travel insurance market.
The committee's report rightly recognises the importance of travel insurance. Our proposals for reform would ensure that customers continue to benefit from a competitive market, with all travellers entitled to the same high level of protection. IT
Nick Starling is director of general insurance and health at the ABI
