Abta lost its battle to continue regulating member travel agents’ sales of travel insurance last week.
The regime introduced in 2005 will end in 18 months, following a Treasury review, with the trade forced to comply with Financial Services Authority regulations like the rest of the insurance industry.
However, there will be a modified system of FSA regulation that Abta believes will be light enough to allow significant numbers of members to go on selling insurance.
The key issues for the trade will be the cost of FSA authorisation and regulation, and the time involved in transactions under the new regime.
If it takes considerably longer than the current five to 10 minutes to complete an uncomplicated insurance sale, many agents will conclude the time could be better spent selling holidays.
That could mean the end of trade sales of holiday insurance – with Abta members’ share of a market worth £670 million in 2006 already down from 50% in 2004 to 24% last year.
The Treasury promises the changes will “minimise the burden on travel firms”, and Monk believes they won’t involve a fresh exam for Abta members. But details of the system won’t become clear until completion of a three-month consultation launched last week.
The Association of British Insurers welcomed the Treasury decision, while sharing Abta’s view that the regulatory regime should reflect the low level of problems with travel insurance and not deter customers from buying policies.
ABI policy adviser Sean Worth said: “Travel is a low-risk product, but policies are too long and consumers do not read them. There should be a clear summary of a policy and exclusions so customers understand what a policy is for.”
Worth added: “We hope travel agents continue selling insurance for uncomplicated trips. We don’t want regulation to be more burdensome than it is now. We don’t want fewer people selling travel insurance.”
However, broking director Greg Lawson of travel insurance provider Citybond foresees problems. “Travel will not be high on agents’ list of priorities. I expect no more than 10% to sign up to FSA authorisation,” he said.
In that case, agents have two options – to become an appointed representative of a regulated company, or to introduce customers to an insurer or broker in return for a commission.
Lawson doubts many agents will become appointed representatives because of the legal and financial liabilities this involves for insurers, which require compliance teams to check travel firms’ finances and monitor their sales.
“Taking on an appointed representative is a big responsibility,” he said. “If a company has more than five appointed representatives, this is considered a network and classified [by the FSA] as ‘high-risk’.”
So, acting as an introducer to an insurer or broker is likely to be the preferred option for most agents.
Lawson suggested agencies could have dedicated PCs or phone lines to insurers in shops – with no regulation necessary.
However, this would cut the trade’s income from travel insurance.
Lawson admitted: “The commission is not particularly attractive at the moment.” But he suggested: “Over time, brokers and underwriters will transfer their marketing budgets to make commissions more attractive.”
Review findings
The report of the Treasury’s travel insurance review makes uncomfortable reading for the trade, noting concerns about poor disclosure of information and mis-selling where insurance is sold with a holiday.
It quotes research commissioned by the ABI among 500 adults who bought travel insurance in the past year, 27% of them from a travel agent or tour operator. This found:
- 42% of buyers from travel agents and tour operators received advice about hazardous sports, compared with 67% buying from insurance brokers
- 45% of agents/operators failed to advise of excesses compared with 26% of regulated firms
- 44% of agents and operators explained how to make a claim, compared with 62% of FSA-regulated firms
- 46% of agents/operators advised on policy limits, compared with 68% at regulated firms
- and 72% of trade customers were not advised about terrorism exclusions, compared with 48% among those of regulated firms.