BIBA response to HM Treasury Travel insurance review (Summary of responses and next steps)
17th September 2007
The British Insurance Brokers’ Association (BIBA) is the UK’s leading general insurance intermediary organisation. We represent the interests of insurance brokers, intermediaries and their customers and have partner members of the leading companies in the insurance industry.
We are pleased to have the opportunity to respond to the Treasury’s Travel Insurance Review (summary of responses and next steps). We are responding on behalf of our collective membership who have contributed to this submission.
BIBA want to congratulate HM Treasury on their decision to extend the scope of FSA Regulation to include the selling of travel insurance sold along with a holiday. This is the right decision for consumer protection and for the insurance industry ensuring a balanced playing field.
We have every confidence in the FSA’s ability to appropriately regulate the Travel Agents and Tour operators and for the FOS to provide dispute resolution.
We do not believe travel Insurance sales will fall following this decision, in fact we believe that the product will benefit long term from an improved image and this will build greater confidence in the mind of the consumer for this class of business, generating more sales long term.
We also support the Government’s response to the House of Commons Treasury committee (Are you covered? Travel insurance and its regulation: Government response to the fourth report of session 2006-07) regarding the Government and the FSA working together on the issue of prominent information on exclusions and that policies are summarised in plain English. However, we do believe that BIBA (since we represent insurance intermediaries and their customers) and not just the ABI should be involved in the discussions regarding the introduction of a proposed comprehensible standard contract and developing a better understanding of the issues surrounding consumers understanding of travel insurance policies. The main benefits of FSA Regulation include ICOB 3 Financial Promotion and ICOB 5 Product Disclosure which will go a long way to meeting these needs.
Do you have any comments on the Government’s preferred approach?
We agree with the governments preferred approach that the scope of FSA Regulation should be extended to include the selling of travel insurance sold along with a holiday. Consumer detriment from the unregulated sale of travel insurance from travel agents and tour operators has now been proven and we welcome the FSA’s appointment as the most appropriate regulator for the job. As highlighted by BIBA in the response to HM treasury’s call for evidence (see enc 1) and our populus survey, BIBA have been able to demonstrate that the sale of Insurance by unregulated travel agents and tour operators clearly leads to consumer detriment.
Do you have any comments on the partial Regulatory Impact Assessment (RIA) in Chapter 5?
The regulatory impact assessment (RIA) in chapter 5:
Option 1 (The status quo)
Cost and benefits
There is no benefit to the consumer here. In fact this is the heaviest cost to the consumer with no governance; no access to a compulsory complaints procedure, no requirements for the sellers to explain policy coverage to the customer. This is simply not an acceptable option as the cost to the consumer is too high.
Likely risks and unintended consequences of this proposal are that consumer will continue to receive inappropriate policies, little advice and fail to have their claims paid and have no access to the FOS.
Option 2 (Strengthened industry self regulation)
Cost and benefits
There is little benefit to the consumer here as non trade association members (of which we estimate this to be 50%) would not abide by these rules, so the problems as per option 1 will continue apart form the FOS.
The problem here is by the time the inadequacies of the policy coverage manifest themselves to the customer, it’s too late. The consumer may be stranded abroad with expensive medical bills to pay – it is no comfort knowing that a formal complaint may be found in their favour in 6 months time.
Likely risks and unintended consequences of this proposal include the consumer continuing to be sold inappropriate policies, receiving little in the way of advice or expertise and failing to have their claims paid.
Option 3 (FSA Regulation)
Costs and benefits
This is the only viable solution. Benefits include tried and tested high level principles, conduct of business rules, particularly ICOB’s ICOB 3 Financial Promotion and ICOB 5 Product Disclosure, ensuring appropriate advice and selling standards.
Necessary consumer protections by way of financial compensation in the event of the failure of the travel agent (FSCS) and independent dispute resolution (FOS) apply here.
Travel Agents take a healthy commission from the sale of travel insurance, and so the FSA and FOS fees are relatively low in relation to the income generated. The FSA illustration demonstrates the cost of regulation at a mere 28 pence per policy sold and that’s if agents only earn a 20% commission (yet we know the majority earn significantly in excess of 20%). Therefore we think this cost is fair and appropriate.
BIBA is strongly of the view that the consumer should be entitled to the same suite of disclosures, irrespective of where they choose to purchase their insurance. This option goes a long way to providing a more level playing field, for the benefit of both the consumer and of the longer term reputation of the general insurance market.
We do not believe the local authority trading standards idea to be a suitable solution for numerous reasons, including:
- The FSA should remain the single unified regulator
- Many travel policies are purchased from the internet (meaning customers would not be “local” anyway
- There is no consistency with the different local bodies
- The FSA have the greatest experience in this area
- Many customers would not see local trading standards as an obvious route to recourse, a strong route or an appropriate route
(Q2) Question 1
Do you agree with the analysis of costs and benefits for the different implementation options, and in particular the assumptions made in quantifying these costs, as well as the impact on competition and small firms?
We believe the majority of travel agents earn a commission in excess of 20% – we are aware of many earning at least 30% and some as much as 60%.
We believe there will be little impact on the number of travel policies sold as Insurance Brokers and Insurers will offer Travel Agents and Tour operators any assistance necessary in arranging a regulated facility for their members while offering an attractive income stream. Otherwise the costs are accurate.
Do you have any comments on whether the draft Statutory Instrument in Annex B achieves the stated policy objective?
The draft statutory instrument in Annex B achieves the stated policy objective.
Do you have any comments on the extent to which travel firms will be able to make use of the ‘appointed representatives’ route, or whether the “introducing exemption” offered by Article 72C of the Regulated Activities Order will be used by travel firms as an alternative business model?
We believe that many travel agents should and will still be selling Travel Insurance, whether as a regulated entity, an appointed representative or an introducer appointed representative. In summary of this point, we would opine that although bundled sales are important source of income to many travel agents it is not their core business.
BIBA believe that Travel Agents are more likely to become introducers as this is the easier path. Travel Agents and Tour Operators can refer clients to Brokers or Insurers via telephone or the web – they will earn commission but will not have the “burden” of FSA regulation. Although we do expect large travel agents e.g. Thomas Cook to seek Direct FSA authorisation.
Do you agree that, where currently exempt from FSA regulation, both car hire companies and event management companies (the latter when selling to commercial customers) should continue to be exempt from regulation?
BIBA believe in a level playing field for consumers and sellers of insurance and therefore we do not agree with the continued exemption of car hire firms or event management companies, as this inevitably leads to less advice, less protection and less access to a statutory dispute resolution procedure.
Do you have any comments on the proposal interim authorisation regime for travel firms selling insurance?
We understand the reasons for the interim authorisation for travel agents, and that this means that many consumers will technically not have FSCS protection for in excess for 2 years. Therefore we would think it appropriate that interim authorised firms highlight this issue when selling a policy.
Other issues raised during the consultation:
2.41 Terrorism Exclusions
BIBA have been campaigning for over 2 years to encourage insurers to include terrorism cover in their travel insurance policies, we will continue to lobby for this and for all sellers to disclose the extent of terrorism cover provided to consumers at point of sale.
As we understand it the current ATOL regulations now apply only if all aspects of the holiday have been bought through ATOL bonded members. With the growth of internet sales we see many millions of consumers booking their own flights / hotels insurance separately and therefore BIBA do not believe the protection from ATOL regulations to be sufficient. We understand that the Civil Aviation Authority have advised a massive reduction in ATOL protected customers, they advise that from a position in 1997 of 97% of holidaymakers having ATOl protection to 61% in 2006, leaving 18 million holiday makers without ATOL protection.
BIBA are interested to see the results of the DfT and CAA Consultation on reform of ATOL bonding and replenishment of ATT
Thank you for taking the time to consider our response. If you have any further queries please contact BIBA’s technical services manager Graeme Trudgill for further information on 02073970218 or firstname.lastname@example.org.
Graeme Trudgill Dip CII Cert Mgmt
Manager, Technical Services
Direct Tel: 020 7397 0218
Direct Fax: 020 7626 9676