Holiday insurance sold by travel agents faces a regulatory clampdown amid persistent evidence that holidaymakers are being mis-sold policies.

Ed Balls, Economic Secretary to the Treasury, launched a public consultation yesterday by highlighting the need for travel insurers to be “open and transparent about consumers’ cover in the event of a terrorist incident”.

In a statement to the Treasury Select Committee, Mr Balls gave warning that many consumers bought insurance expecting to be covered for emergency medical treatment, repatriation and continuing carer expenses. “Only 50 per cent of policies provide such cover.” He added: “In recent years, there have been growing concerns from consumer groups and sections of the industry that the market is not working as well as it could, raising questions about whether regulation and appropriate redress should apply to the selling of travel insurance.

“We therefore need to get to the bottom of whether travel insurance sold with a holiday is being mis-sold.”

Mr Balls said that one of the options to be reviewed would be whether insurance sold by travel agents should come under the aegis of the Financial Services Authority (FSA), the City regulator. It was exempted when the FSA took on responsibility for the sale of insurance.

One of the examples given by the Treasury of holidaymakers receiving inadequate information on exclusions was terrorist incidents. Recent incidents where policies had not paid out included the bombings at Sharm el-Sheikh, in Egypt, and Bali.

Mr Balls, who launched a review of travel insurance in August, cited a Which? report in the summer indicating that only 35 per cent of travel agents asked medical questions, compared with 81 per cent of banks and insurers. Only 19 per cent explained what the policy covered and none outlined what it did not cover. A survey of its members by the Association of British Insurers (ABI) found that 50 per cent of travel insurance policies did not cover medical expenses relating to a terrorist incident.

However, a spokesman for the ABI insisted that the incidence of customers walking out of travel agents with the wrong policy was “very low”. He said that it was not the ABI’s place to issue warnings to its members over such issues. “It is a competitive marketplace, and it is up to our individual members as to what they put in a policy and what they don’t.”

However, he said that the ABI believed in strong regulation and had been against the decision to exempt insurance sold with holiday packages from supervision by the FSA. “We wanted regulation to be consistent across the board.”

The Association of British Travel Agents (Abta), which also gave evidence to the Select Committee, said that its view was that self-regulation “works well to the benefit of consumers and Abta members”, pointing out that the sale of travel insurance was already governed by a code of conduct.

Mark Tanzer, the chief executive of Abta, said: “We believe that our members are not guilty of any significant level of mis-selling, but we know that the Government is keen to ensure that the public is not put at potential risk.

“We will continue to provide the Treasury with all possible assistance so that they can achieve a view that accurately and fairly represents the interests of both the public and our members.”

Cover for globe-trotting Britons

In a Which? survey, 35 per cent of travel agents asked medical questions, 19 per cent explained what the policy covered and none explained exclusions

Source: Treasury/Which?

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