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.
NOTES TO EDITORS:
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:
http://www.hm-treasury.gov.uk/newsroom_and_speeches/press/2006/press_59_06.cfm
http://www.hm-treasury.gov.uk/newsroom_and_speeches/press/2006/press_98_06.cfm
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 public.enquiries@hm-treasury.gov.uk
7. This press release and other Treasury publications and
information are available on the Treasury website at http://www.hm-treasury.gov.uk.
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