The clearing of the decks before this week’s changing of the political guard has brought an unexpected bonus for the insurance industry with the announcement by Treasury minister Ed Balls that all travel insurance sales are going to be regulated by the Financial Services Authority from January 2009.
This argument has been running for years with travel agents fighting a fierce but misguided, rearguard action to stay out of the regulatory net. They initially won an exception with a lot of high sounding promises about better training, self regulation and monitoring of consumer complaints. We all knew that was only abit of polite window dressing to cover up the fact that the FSA couldn’t cope with taking on travel agents at the same time as the rest of the general insurance sales show.
Nevertheless, the Association of British Travel Agents had a chance to get their members in line but failed to take it. If ABTA had have introduced a tough training standard, a rigorous self-regulatory regime and done something to reduce the outrageous commissions their members earn off selling travel insurance they may have kept them out of the regulatory net. They failed on every count so no-one should feel sorry for them or their members. I certainly do not believe that statutory regulation per se will many force travel agents to stop selling insurance as ABTA has claimed today. Most of them earn far too much in commissions to chuck it in at the first scent of an FSA inspection.
Of course, what could happen is that the FSA starts to take a dim view of policies where less than 40% of the premium ends up in the hands of the underwriter and enforce some sort of disclosure regime on the market. Now, that would provoke a shake-out.
In the meantime, the industry as a whole will benefit from the Treasury’s change of heart. Travel insurance attracts a disproportionately high level of complaints and critical press coverage, tarnishing the image of the whole industry. Statutory regulation gives everyone a chance to put matters right and whatever job Ed Balls goes onto, the industry should be grateful to him for this legacy.
The only shame is that we have to wait until January 2009 for it to bite.
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