Good news: travel insurance policies are to be cleaned up. Bad news: it won't happen for two years!
As I explained last August in Don't Trust That Travel Agent, Ed Balls, Economic Secretary to the Treasury, has been looking into the sale of travel insurance by travel agents and tour operators.
Around twenty million British holidaymakers buy travel insurance each year and we will spend close to £700 million on this cover in 2007 alone. Around a third of all policies are sold by travel agents and tour operators, making them the biggest players in this market.
At present, travel insurance sold separately by stand-alone providers (such as brokers, financial advisers and insurance companies) is regulated by financial watchdog the Financial Services Authority (FSA). Bizarrely, however, travel agents and tour operators have dodged this strict regime for years and, instead, follow a much weaker self-regulated code of practice.
Thus, holidaymakers who buy travel insurance alongside flights and holidays receive a much lower level of consumer protection when it comes to the design, administration and benefits of policies. Furthermore, travel firms take advantage of their customers by charging them sky-high premiums for distinctly second-rate protection. In a nutshell, these policies are nothing short of a rip-off!
As widely expected, the Balls enquiry found that FSA-regulated travel-insurance providers provide much better point-of-sale information to consumers, plus a more thorough sales process, enabling consumers to make more informed choices about the suitability of policies.
For five years, I've begged for a level playing field, with all travel insurance policies governed by the same set of rules. The good news is that the Balls inquiry has reached the same conclusion: it has confirmed that travel insurance sold by travel agents and tour operators is to be regulated by the FSA.
The bad news is that, predictably, the wheels of HM Treasury grind very slowly indeed. Therefore, the FSA will not begin to oversee the selling of insurance by travel firms until January 2009 (so it'll miss the Christmas holiday period in 2008, shame!). As a result, the gaping holes in the regulatory safety-net will remain for the next eighteen months or so.
So, until the new regime comes into force in 2009, travellers need to tread carefully. In general, I have a rule which states 'bundles offer poor value', so I always recommend shopping around for financial products, including travel insurance. Therefore, if you're one of the twenty million Brits who buy a package holiday this year, then don't be duped into paying over the odds for sub-standard travel insurance.
If you'd like better protection and lower premiums, then read Don't Trip Up When You Travel and The Secret Of Cheap Travel Insurance -- and don't forget to get a quality quote from our insurance centre.
Here's wishing you a happy holiday!