CONFUSION
reigns over a loophole in insurance regulation which could mean agents and
operators will have to stop selling car hire – or face expensive and complex
Financial Services Authority regulation.
The
FSA said last week the sale of pre-paid hire car insurance, sold as standard
with rentals, is outside ABTA’s insurance sales regulation and will come under
FSA control. ABTA is to take over travel insurance regulation for agents from
January 14 2005.
The
problem occurs because car insurance is not classed as holiday or
travel-related insurance and is therefore outside ABTA’s
regulatory
remit.
The
industry fears the omission could cost agents a “massive” revenue stream.
ABTA
head of financial services Mike Monk admitted he was clueless as to how the situation
had arisen.
“I
have no idea why the FSA has distinguished car hire outside of the exclusion.
“As
far as I know nobody has been aware of this before. I find it very difficult to
understand. It’s an unreasonable standpoint,” he said.
The
loophole came to light in a letter
from
the FSA to Newman Street which outlined exclusions from ABTA’s opt-out of the
regulations. According to the FSA, standard car insurance is not “ancillary”.
Therefore, it is not classed as a “connected contract” – essential for ABTA’s
opt out to apply. Stand-alone insurance sales are also ruled out for the trade.
The
FSA wrote: “Travel agents and tour operators offering stand-alone insurance or
the pre-purchase of hire car insurance are liable to be regulated for that
aspect of their business at least.”
Car
rental operators were confused by the news. Holiday Autos sales director UK and
Ireland Ian Coyle said the revelations were “astounding” but was unable to
comment until the broker fully understood the situation.
“Car
rental needs to be included as part of ABTA’s insurance regulation, otherwise
this will strip out a massive earnings stream for agents,” he said.
“We
will ensure travel agents are able to sell car hire with insurance come
January.”
Alamo
marketing director Sally Hinds warned it would increase the strain on margins
for the trade.
“Agents
and operators are already under tremendous pressure to look for other revenue
streams.
“Car
hire is a very lucrative ancillary, which if lost would put even more pressure
on the travel industry.”
An
FSA spokesman conceded it was difficult to clarify specifically which
categories of car hire insurance its ruling applies to.
“Some
people want the answers to the universe but sometimes you have to go with the
flow,” he said.
However,
he said it applied to a standard, fully comprehensive package, “typically what
most people have for their own car”.
He
added the FSA would respond to ABTA once it is contacted by Newman Street.