From January next year, which is just a few weeks away, a new regime whose aim is to change how the sale of travel insurance is done in the UK will kick off. The new rules, introduced by the Financial Services Authority (FSA), will bring the sale of the cover under the supervision of the regulator, rather than the Association of British Travel Insurers (ABTA), as it is now.

The regime will specifically affect connected travel insurance – policies bought with a holiday, travel tickets, accommodation or a tour. Although the FSA, prompted by the Treasury to introduce the change, announced its plans more than a year ago, travel agents have been rather reluctant to apply for authorisation.

Sale of travel insurance under the new regime

Fundamentally, all agents wishing to continue selling connected travel insurance will be, under the new regulation, required to register with the regulator. And they have a few options. Thus, agents can either become an appointed representative of travel insurance provider (AR) or be an introducer appointed representative (IAR). In the alternative, they may opt to cease selling the product.

Whereas as an AR they are allowed to sell travel insurance under the licence of an insurance intermediary regulated by the FSA, in the case of IAR they can only pass information about their insurance provider, including their contact details to the customer. The second scenario has been described by expert as one that makes agents to only pass on business to travel insurance providers in expectation of some form of commission. This is because the customer, armed with enough information, would be buying directly from the provider.

Since plans about the new rules became obvious the ABTA had advanced argument against the cost of joining the FSA to agents. “We’ve asked the FSA to compare the fee to be an ABTA member with the fees proposed – in our view the level of fees will act as a disincentive to authorisation,” said head of policy and communications at FSA, David Marshall.

Authorisation and Nov 15 deadline

Based on its final decision, agents were expected to register by November 15, 2008 at the latest. Failure to file an application before the deadline could result in an agent being excluded from selling the product when the regime takes off next month, agents were warned.

But as at the last count last week, hours before the deadline, only a handful of operators had applied. The real fear is that many would stop selling the product from January 2009. In the end, while they would miss out on substantial commission, put at a minimum of £7,000 a year by a survey, customers would also be affected.

Customers, from January 2, will no longer be able buy travel insurance when purchasing a holiday if their high street agent or tour operator or even online retailer is not authorised to sell the cover as the appointed representative of an insurer or insurance broker.

Even as the deadline drew closer, it was clear that only a few retailers and tour operators would be registered as appointed representatives. This is because, as the ABTA feared, most brokers and insurers would be avoiding the additional regulatory burden of having too many representatives linked to them. As few as five, therefore, would be easily managed. And the fewer retailers there are, the fewer travellers taking out travel insurance there would, perhaps, be.