Regulation update
Just over a year after the sale of travel insurance through travel agents was regulated in the UK, ITIJ takes a look at the market to see what effects the regulation has had on the travel agents themselves, as well as the insurers
First published in ITIJ 115, August 2010
Just over a year after the sale of travel insurance through travel agents was regulated in the UK, ITIJ takes a look at the market to see what effects the regulation has had on the travel agents themselves, as well as the insurers
On 1 January last year, travel insurance sold by the UK travel trade left the jurisdiction of the Association of British Travel Agents (ABTA) and came under Financial Services Authority (FSA) regulation. Under the new FSA rules travel agents or tour operators wishing to sell travel insurance had to be either themselves authorised by the FSA, act as an appointed representative of an FSA authorised company or register as an Introducer Appointed Representative and pass the client onto an insurance supplier.
The reasons behind the changes were clear. Industry research suggested that package holidays often sold inadequate or limited insurance policies, especially with regards to medical cover. There were also fears that customers were not being made aware of the need for extra cover if carrying out sporting or hazardous activities and the declaration of pre-existing medical conditions. A YouGov 2008 poll found that travel agents failed to ask 16 per cent of respondents about their pre-existing medical conditions with 17 per cent of customers saying that agents had failed to outline what exactly was and was not included in the cover they offer.
According to a Treasury Select Committee inquiry in 2007, FSA regulated companies were better at explaining these policy features and exclusions to customers. Therefore it was hoped that regulating agents and operators would give greater consumer protection including better redress, through the financial ombudsman, if they felt they had been sold an inappropriate or inadequate policy. Despite this, there were concerns raised prior to the introduction of the regulations regarding the impact they could have on the consumer and the travel insurance industry as a whole.
Travel trading
ABTA issued a warning that agents and operators would stop selling travel insurance because of increased cost and red tape with the effect that more holidaymakers would travel uninsured. Brokers and insurers, it said, would also limit the number of representatives they had.
So what has ABTA and others in the travel trade industry found in the 18 months since the regulations were introduced?
“Inevitably some have just moved out of the insurance market and anecdotally less people have travelled insured but we don’t have any figures.”
A spokesman’s response to ITIJ’s question is stark. “We’ve moved on from this now. It’s almost two years down the line and for us it’s finished,” he says. “We haven’t actually gone out to our members and asked them if they have stopped selling insurance. Inevitably some have just moved out of the insurance market and anecdotally less people have travelled insured but we don’t have any figures.”
Any complaints or concerns from their members? “No. They fully appreciated what we did trying to ensure that they would not end up being FSA regulated.”
An FSA spokesperson was also unable to say how many travel agents and tour operators had applied for FSA authorisation or had become an Introducer or appointed representative.
However, Martin Rothwell managing partner of World First Travel Insurance (WFTI), can provide at least some clarity. Last April, WFTI research found that 25 per cent of travel agents were breaching the FSA regulations. According to Rothwell, at the time some appointed representatives were not making customers aware of which companies they were representing. Rothwell has not repeated that research but adds: “Certainly there are operators who are offering holiday insurance who should be reviewing their compliance and making sure they are 100 per cent compliant. It’s an ongoing process of monitoring and development and treating the customer fairly,” he says.
Despite these issues Rothwell believes the regulation changes were ‘a good thing’ as they have produced better informed customers and given them a fairer deal. “They are more aware that they don’t have to buy insurance from a travel agent, that they can shop around and ensure that the insurance is appropriate for their needs,” he says. “As an independent insurance intermediary all of our staff are on customer service and technical development plans. Operators and agents should have that same level of training in place and now do.”
However, on the flip side, Rothwell says the changes means that most agents or operators now only offer one travel insurance product – where previously they would have had access to a number of different schemes run by different providers. So it may make it even harder for a customer who is looking for something more specialist and can’t get that advice from an agent or an operator.
What of direct changes to the World First business? “It’s meant more business for us. We’ve grown by 400 per cent since the regulations came in,” Rothwell reveals.
That growth has come from customers shopping around. Rothwell says: “I don’t think there are more people travelling without insurance. Travel insurance does historically have a relatively high take-up.”
Business has also come through taking on agents and operators as introducer appointed representatives. “We offer a white labelling solution called Trade Routes, where we work with a number of small independent operators. They chose to no longer offer travel insurance directly themselves after the changes and instead partner with us,” Rothwell says. “Trade Routes allows an operator to have a website in their brand but we are the ones arranging the insurance with full quotes and medical screening. We pay them a commission as a result.”
But there have been disadvantages as well. “We discontinued a scheme for UK hotels offering holiday cancellation insurance. We didn’t want to go down the route of making the hotels appointed representatives,” Rothwell says. “We had hundreds of very small hotels and it was a logistical and cost issue. We didn’t feel we could implement the necessary training for all.”
Other options
Anthony Martin, managing director of Rock Insurance, says it made the decision not to directly regulate any agents or operators it had been working with itself, but to instead partner with a firm called ITC, which specialises in compliance. For those who decided to become appointed representatives of Rock, ITC managed the entire process including submission to the FSA, face-to-face training where appropriate and online training.
“We took the decision that we didn’t really understand how this legislation would impact the industry so we went to the specialist. We have introduced 60 agents to ITC over the last 12 months and they have become regulated. Only 10 per cent of the agents we were working with before decided they didn’t want to be regulated. It wasn’t economical for them and we expected to lose them because they didn’t sell enough insurance to cover the regulation costs,” Martin states, “but our travel insurance conversion rate is higher. The travel agency business over the last 12 months has gone up seven per cent.”
He also rejects ABTA’s concerns over more travellers leaving the country without insurance. “That’s not true. The agents that have embraced it have done very well and they’ve seen an upturn in conversion. They have become more focused on selling the insurance because there is a cost associated with it,” he says. “Those that have gone through the Introducer route have seen conversions go down but that is purely because the customer wants a seamless transaction.”
Matt Dyer, chief executive of ITC, agrees that travel insurance is now ‘higher on the radar’ for agents. “The staff are better trained on insurance than they have ever been before. Because they are regulated they know that they have to get everything right,” he states.
An FSA spokesperson was also unable to say how many travel agents and tour operators had applied for FSA authorisation or had become an Introducer or appointed representative
Of those regulated, Dyer says ‘only a handful’ got fully authorised. “Even the big guys like Tui didn’t do this. The regulation was seen as too onerous and a secondary product for them,” he says. “Becoming an appointed representative has been the favoured route and we look after 750 such agents and operators. The Introducer route is good for smaller firms who didn’t sell many policies but it puts a much bigger onus on the product provider.”
A must-have for some
These decisions have largely been based on how much travel insurance an agent and operator was selling. But not in every case. “A number of operators, coach operators are a prime example, saw insurance as a service and as a duty of care no matter how few they sold. They wanted to continue offering it to their customers,” Dyer explains.
The changes have led to increased costs for agents and operators, but Dyer believes these have not been as ‘earth shattering’ as first feared. “It hasn’t been the tens or hundreds of thousands of pounds that some thought,” he says. “The cost rise has been acceptable.”
So what do the agents and operators say? ITIJ contacted a range asking what impact the regulations have had but only two replied.
Hays Travel became an appointed representative for Rock Insurance through ITC. Communications manager Caroline Hays says: “We’ve experienced increased costs through this process and through annual exams which all our sellers have to take.”
Mark Brock, associate director of Barrhead Travel, which is an appointed representative with ITC, is succinct about the reasons behind the regulations introduction. “The insurance industry wanted a bigger piece of the action with more direct business and to cut out the travel agent from the loop in order to earn more money,” he says. “What does a Boots or Tesco member of staff know first-hand about the danger of travelling without proper insurance cover? Our understanding is that more and more people are travelling with either no insurance or inadequate credit card insurance. It’s another lamentable example of the tail wagging the dog. The insurance industry is very powerful and the government of the time was weak and badly advised.”
What have been the disadvantages? “It has meant a full re-evaluation of how we transact insurance, starting with lengthy consultations with the FSA, ABTA and the insurance industry so we could select the most appropriate way forward,” Brock explains. “We had to bite the bullet and it was all very time consuming and expensive. Additional training has been implemented, which has to be done each year. But after all this additional effort there is very little additional benefit for the consumer.”
A number of operators, coach operators are a prime example, saw insurance as a service and asa duty of care no matter how few they sold. They wanted to continue offering it to their customers
Brock argues that many customers do not get proper advice now and are being sold insurance on price and not suitability. “Supplier insurance in particular is being mis-sold as in certain circumstances it is not needed and the insurance companies will not pay out as they do not need to,” he says. “Our advice to other agents is to follow the law but to use every possible legal means to put over the consumer case, which is that the travelling public got a better deal before and no-one knows the ins and outs of travel better than an agent.”
So it seems the views on whether the regulation changes have been good or bad for customers are mixed. But whatever the realities of extra costs, higher conversion rates or more or less travellers leaving UK shores without insurance, concerns over travel agents and insurance still make the papers. Only last month a Which? investigation found that agents were failing to provide basic policy details and were uncompetitive on price. There is clearly much work yet to be done.