The prospect of regulation of the travel insurance sector looms large as the FSA garners more support. Katy Dowell reports

When Treasury Minister Ed Balls committed to reviewing whether travel agents and tour operators selling insurance should come under the remit of the FSA, Biba saw an opportunity to level the regulatory playing field.

Little did it know that lobbying in favour of further regulation had gathered pace and the prospects of regulation for the travel sector looks likely.

Balls is already talking about whether the FSA is equipped to expand its scope to include tour operators. Just this week he told a Treasury committee: "We need a risk-based approach… We need to ask do we need travel regulation at all? If so, there is a real question as to whether we want to create a new regulator or make use of the regulator we already have."

The debate has come a long way since travel and tour operators were first excluded from FSA regulation. At the time, Biba's attempts to persuade the government to impose rules were thwarted by the powerful Association of British Travel Agents (Abta). It was felt that Abta was in favour with the government and had lobbyists influential enough to strongarm MPs into supporting its cause.

Today, however, the political landscape has changed.

In September, Abta was removed from the Office of Fair Trading's (Oft) approved bodies list after the trade association said it was reducing the level of protection it gave consumers. This was a result of Abta's decision to withdraw its bonding scheme which offered compensation to consumers who lost deposits or fly-home cover because their Abta member travel agents had gone bust or absconded.

It was a bold enough move to give the Oft "concerns", which still ring true today.

According to Alan Williams, Oft director of markets and projects: "Generally, complaints tend to be about a lack of cover."

It is a point which Balls picks up: "In recent years there have been growing concerns from consumer groups and sections of the industry that the market is not working as well as it could, raising questions about whether regulation and appropriate redress should apply to the selling of travel insurance.

"We therefore need to get to the bottom of whether travel insurance sold with a holiday is being mis-sold, and whether we need to be doing more to educate consumers to consider the cover they want and ensure that they are properly informed."

Lacking skills
Biba is clear: travel insurance is mis-sold because those selling it are not skilled enough to outline the terms and conditions of policies. It is estimated up to 50% of policies sold exclude terrorism cover, so that where a holiday maker is a victim of a terrorist attack abroad he could well be left picking up medical bills.

Graeme Trudgill, Biba's technical manager, says: "The majority of travel agents do not provide adequate travel cover for terrorism. Holidaymakers do not know they aren't covered because they are not being advised properly."

Balls adds: "My fear in regard to terrorism is that people are not aware of what cover they get. You only find out after [the terrorist attack] that you are not covered. We need to make people more aware of what cover is open to them."

And here Biba has yet another powerful ally in the Financial Services Consumer Panel. It says: "The panel believes some products in these [travel and tour operator] markets offer poor value to consumers, as they are overpriced. This suggests a lack of effective competition in the marketplace due to consumers not being aware of other similar cheaper products and lack of proper advice in the sales of these products."

And just to add the final nail in the coffin, Holiday Travel Watch (HTW), the body established to advise and assist holidaymakers who want to make complaints against travel operators, has also slammed Abta.

In a report compiling its latest mystery shopper exercise on insurance sales, it says: "We have already discovered, through the holidaymaker's experience in this report, the perilous state of cover, understanding or operation of travel insurance."

Abta requires its 1,600 members to comply with a code of practice when selling travel cover. But, says Frank Brahany managing director of HTW, the code is "a tiger without teeth". Yet Abta says the code had input from trading standards bodies. Also during its last check in September, just 16 companies were not compliant with its requirements, Abta says. These companies were duly fined.

Abta also says that being able to buy insurance at the point of sale is essential because it covers any cancellation. Regulation, it claims, would be to the detriment of the consumer. Why? Because currently 14% of travellers do not buy insurance and this is likely to spiral if they cannot buy cover at the point of sale. Furthermore, the number of travel companies selling insurance would undoubtedly dwindle if regulation were brought in, so limiting competition.

"The burden of FSA regulation is enormous," says Mike Monk, head of policy for Abta. "And there is no evidence of any consumer detriment.

However, the trade association has little by way of evidence to support its claims."

Suddenly Biba finds itself with powerful supporters who are in favour of the FSA expanding its remit. Balls himself says he has experienced instances of being sold a policy by a travel agent which failed to explain its terms and conditions.

With Biba gearing up to produce evidence aimed at proving mis-selling takes place, it is clear that Abta has a fight on its hand. The Treasury has given until the end of February for all evidence to be presented. Nevertheless, it is hard to see right now how tour operators will escape the FSA. IT