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Ed Balls announces FSA to regulate all travel insurance

Ed Balls announces FSA to regulate all travel insurance

HM TREASURY News Release (71/07) issued by The Government News Network on 26 June 2007

The Economic Secretary to the Treasury, Ed Balls, today announced that the Government intends to give the Financial Services Authority (FSA) the responsibility for regulating the selling of travel insurance sold along with a holiday. The FSA at present only regulate travel insurance sold on a stand-alone basis.

Ed Balls, Economic Secretary said:

"Twenty million people are buying travel insurance each year, and some are putting themselves and their families at risk by buying travel insurance that may not cover their needs. This happens as consumers have a 'knowledge gap' when buying travel insurance, as they often do not understand what they are buying or what it covers.

"Evidence shows that companies regulated by the FSA are better at getting consumers to make an informed choice because they are better at explaining the key features and exclusions of the product and guiding the customer through the sales process.

"I have therefore decided to make all travel insurance policies sold in the UK to be done through FSA regulated companies. This will come into effect from January 2009, following a further period of consultation. Consumers in the future buying travel insurance sold alongside their holiday will get the same core regulatory protection and rights as consumers buying stand-alone travel insurance do now."

The FSA will implement this change in principles-based and proportionate way, minimising the burden on those travel firms that do become FSA authorised.

Travel firms that decide not to seek FSA authorisation will be able to sell travel insurance through an appointed representatives route i.e. the travel firm will be able to sell travel insurance on behalf of a FSA regulated company. There are additional options available to travel firms that may allow them to provide information on insurance for remuneration and, as part of our consultation, we are seeking views on whether these freedoms offer travel firms a viable alternative to continue offering insurance services to their customers.

The Treasury will implement the new structure in a transitional way, giving the FSA and the industry time to adapt to the new regulatory environment. It has also exempted from regulation the selling of certain types of insurance by certain sectors, for example, certain additional insurances sold by car hire firms, where the evidence shows that the risk of consumer detriment is low.

Consumers have a 'knowledge gap' in understanding travel insurance as a product and the cover it provides. Evidence shows consumers make less informed choices when purchasing travel insurance than other insurance products because:

* although the travel insurance market is highly competitive, policies tend to be more complicated that a simple household or motor policy,

* as a secondary purchase, consumers are less likely to be focussed on the details of their insurance policy than through a direct sale, and

* the majority of consumers only really seem to consider price, not the details of the policy, in deciding which policy to purchase.

Evidence shows FSA regulated firms selling travel insurance are better at providing consumers with product information and guiding them through the sales process.

The decision means that consumers of travel insurance sold along with a holiday will be protected by a core baseline of statutory protection provided by FSA regulation.

These protections include a requirement on firms to abide by the FSA's high-level principles, including requirements to conduct their business with due skill, care and diligence and to treat customers fairly. Consumers will also have access to the Financial Ombudsman Service if things go wrong.

The Treasury announced that it would conduct an investigation into the selling of travel insurance sold along with a holiday or related travel, amid concerns from consumer groups and sections of the industry that the market was not working correctly. This fulfilled a Treasury commitment to review this issue.

The Treasury Select Committee produced a report which it submitted to the Treasury's travel insurance review call for evidence that stated travel insurance sold along with a holiday should be regulated by the FSA, as long as it can be done in a proportionate way.

The Treasury is today publishing a summary of responses document that highlights the key arguments put forward by respondents to the call for evidence along with draft legislation and a partial Regulatory Impact Assessment. This document also contains a consultation on its decision, including on the draft legislation and any transitional measures that might be necessary.

The TSC report also called for the Government to work with the FSA and the insurance industry to produce policies that are better summarised in plain English. The Treasury is taking forward this work with the Association of British Insurers and FSA in order to develop a better understanding of what the issues are around consumers' understanding of travel insurance policies and to look at whether industry guidance could help improve the quality of disclosure and better signpost consumers through what is a relatively complex insurance policy.


1. The Economic Secretary, Ed Balls launched the travel insurance review on 4 August 2006 and issued a call for evidence on 23 November 2006. These press notices refer:

2. ONS statistics show that there were 64.2 million visits abroad by UK residents in 2004. Two-thirds of these visits abroad were holidays, just under half of which were package holidays. Spending on visits abroad by UK residents was over £30 billion. Some 20 million consumers purchase travel insurance each year in a market worth £670m in 2006. Latest data shows travel insurance sold by travel agents/tour operators accounted for around 24% of insurance sales in 2006.

3. The Financial Services Authority is responsible for regulating the sale of general insurance products. However, they do not currently regulate sales of travel insurance sold along with a holiday. This position was reviewed in 2003, and while the Treasury decided at the time that there was insufficient evidence of problems with consumer protection to warrant changes to the regulatory framework, it undertook to keep the position under review.

4. The terms of reference of the Treasury Select Committee (TSC) are to examine the expenditure, administration and policy of the Treasury, Inland Revenue, Customs and Excise and associated public bodies. Its remit therefore also covers the Bank of England, the Financial Services Authority, and financial and economic subjects generally. The TSC published its report "Are you covered? Travel insurance and its regulation" on 22 February 2007 in response to the Treasury's call for evidence.

5. The summary of response document can be accessed by clicking here. The consultation on the legislation opens today and will close on 18 September 2007.

6. Non-media enquiries should be addressed to the Treasury's Correspondence and Enquiry Unit on 020 7270 4558, or by e-mail to

7. This press release and other Treasury publications and information are available on the Treasury website at If you would like Treasury press releases to be sent to you automatically by e-mail you can subscribe to this service from the press release site on the website.

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