Changing regulations
Three years ago the travel industry breathed a sigh of relief. The rest of the insurance market was brought under the regulation of the Financial Services Authority, but travel insurance sold as part of a package holiday was exempt.
That exemption is to be removed from January 1 2009 and there will be serious consequences for any business that sells travel insurance and is not authorised to do so.
Prepare now
It will take some time to prepare your business for these changes, so start the process now. You can be directly authorised to sell insurance by the FSA, or become an authorised representative of a regulated insurer or broker.
There are pros and cons to both options. Direct authorisation will incur higher costs up front. YouÕll probably need to employ a consultant to advise on how to set up your business to ensure you meet FSA requirements. YouÕll need to train staff, prepare a compliance manual and report your transactions and financial position, among other things. You can be independent and not tied to one organisation.
Becoming an authorised representative is initially cheaper and simpler. Check what each insurer offers its representative and choose carefully between the companies. Many will offer a compliance manual and staff training as part of the package. YouÕll save on set-up costs, but will have to surrender a chunk of your commission to the insurer/broker of which you are an authorised representative.
Some companies are choosing to become a representative of an insurer but plan to assess the situation after a year or so. Much may depend on the volume of insurance business you conduct.
New responsibilities
Simply signing an authorised representative agreement is not a panacea to all the ills of regulation. You will still have a contractual and regulatory obligation to comply with FSA rules and will need to take compliance seriously.
Ensuring you sell customers the right insurance will be your responsibility. If a client has a problem on holiday and their policy does not have the correct cover you can be scrutinised by the FSA to discover whether you followed the correct processes when the sale was made. You can be sued if you did not comply with FSA regulations when you sold the policy and can face disciplinary or criminal proceedings and a contract claim from the company of which you are an authorised representative.
How to comply
On a practical level, this will involve asking the right questions, getting plenty of details from the customer on any health problems and the type of activities theyÕll partake in on holiday, and recording their answers. It is essentially a matter of matching the right policy and price to the customer.
If you become an authorised representative of a major market broker or insurer, then that broker or insurer will probably explain to you what you need to do to comply and may provide training. If you are directly authorised, you will need to sort the compliance requirements out for yourself.
The alternatives
You can choose not to sell travel insurance. However, the anticipated bundling of travel insurance into other more common policies (such as home insurance) has been slower than some predicted. There is a risk to your reputation if you send customers on holiday without insurance.
You do not need to be authorised to give insurance for free. However, you would genuinely need to charge nothing for the insurance. Any way that you absorb the cost of the insurance into the price paid by a customer will be considered by the FSA as a way of charging for the policy Ð and so you are still required to comply with its regulations.
Some customers may conclude that they have been disadvantaged by being encouraged to take a lesser policy for free instead of a better policy in return for a small premium. Seeking exemption by not charging is a risky strategy.
Serious consequences
It takes only one complaint from a customer to draw the regulatorÕs attention. It will potentially be a criminal offence to sell an insurance policy without FSA authorisation. It is not advisable to ignore the new rules.
For information visit asb-law.com
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