Introduction
Citizens Advice is pleased to have this opportunity to comment on the proposed regulations for travel insurance sold with connected travel products. In 2007 we provided evidence for the Treasury Select Committee and responded to HM Treasury’s travel industry review call for evidence. We continue to support the view that bundled travel insurance should be regulated and are pleased to see this come to fruition.
The Citizens Advice Bureaux (CAB) network is the largest independent network of free advice centres in Europe, providing advice from over 3,200 outlets throughout Wales, England and Northern Ireland. We provide advice from a range of outlets, including GPs’ surgeries, hospitals, community centres, county courts and magistrates courts, and mobile services both in rural areas and to serve particular dispersed groups.
The Citizens Advice service provides free, independent, confidential and impartial advice to everyone on their rights and responsibilities. It values diversity, promotes equality and challenges discrimination.
The service aims:
- To provide the advice people need for the problems they face; and
- To improve the policies and practices that affect people’s lives.
In 2006-2007 the CAB service dealt with 5.7 million enquiries in total. Of these 1,794 concerned holiday and travel insurance.
General comments
Citizens Advice welcomes the regulation of bundled travel insurance and the level of consumer protection this brings. In particular we welcome:
- access to the Financial Services Ombudsman (FOS) for dispute resolution that offers both conciliation and awards for payment by business where the consumer has not been treated fairly ;
- access to the Financial Services Compensation Scheme (FSCS), where consumers might otherwise find financial failures mean they are unable to access payments due under the liabilities they have insured; and
- better provision of important information, relevant to the purchase of suitable travel/ holiday insurance.
CAB evidence
Bureaux report a range of problems associated with travel and holiday insurance. These include:
Exclusions for certain treatments or costs
A CAB in Kent reported her husband’s illness had not been covered for substantial medical costs they incurred whilst on holiday in Spain. The couple had given details of the prescription medication he was using and were not aware of the exclusions for certain treatments.
A Hampshire CAB client was billed €12,752 for search and rescue whilst on holiday in Australia. He had gone walking and fallen into a gorge but eventually found his way back. But his landlady had already called the rescue services. His insurer paid for the helicopter with its emergency doctor which cost €6,500 but said the medical expenses would not cover the search and rescue bill as this was provided by a voluntary organisation.
Lack of explanation of the terms of the policy
A Nottinghamshire CAB client had a claim for £1,422 turned down because she had needed to spend less than 24 hours in hospital. The policy had been bought from the travel agent and she had no idea there was any other company involved. She had always accepted the travel insurance they offered and had never received any explanation about the terms of the policy they were selling.
A Wales CAB commented on the need for travel agents to draw consumers’ attention to the main points of the travel insurance they sell, particularly any exclusions. Their client had been refused a claim when they had to cancel a holiday for which a deposit had been paid. He had not been diagnosed when he booked but the insurers claim he should have declared he was awaiting the tests his GP ordered as a precautionary measure. The test results meant he could not fly.
A 75 year old Devon CAB client was unable to travel when she fell ill the day before her holiday. When she claimed on the insurance she bought with the holiday she received a letter saying that the excess on the policy exceeded the sum claimed.
Pre-existing conditions
A CAB in the West Midlands were concerned about the failure of travel insurers to make clear the scope of pre-existing conditions that needed to be declared. Their client had needed a heart bypass prior to travel and his claim for the cancelled holiday was refused because he had failed to declare his high blood pressure, which had been controlled for years through medication.
An East Yorkshire CAB client had to cancel a £1,500 holiday when she suffered with an abscess on her palate. This happened between buying the holiday and travel insurance and the departure date. Her doctor referred her to the hospital who advised she should cancel the planned holiday. The insurers refused to pay, claiming non-disclosure of a pre-existing condition. The bureau commented that failure by travel agents to provide a copy of the insurance policy seemed to be routine.
Specific questions
Chapter 3
Q1: Do you agree with our proposed application of the AR regime?
Yes, we agree that the same regime should apply to companies who sell either bundled or stand-alone travel insurance. This ensures there is a level playing field and achieves the same level of consumer protection for all travel insurance purchases.
Q2: Do you agree with our proposed application of the ‘approved persons’ regime?
Yes, for the same reasons as we have given above.
We also found the Annex B examples useful in discerning what is and is not to be regulated.
Q3: Do you agree with the changes proposed to PERG?
The changes appear to meet the desired outcome of making arrangements for the extended Regulated Activities Order, as proposed. They also seem to fit well with parallel proposals for the Single Point of Contact under the Directive on Services o0f Common Interest, which is currently being transposed into UK legislation. Whilst we appreciate that financial services are covered within a separate regime, as indicated in Annex F on passporting at paragraph 5.12.13, it would seem useful that the requirements match easily. This could help both business and those consumers who may want to check a business’s authorization when considering a cross-border purchase.
Q4: Do you agree with the regulatory fees proposals?
As a consumer organization we have no direct information of fees and their effect on regulated business. The proposals do, however, appear fair and well argued and we appreciate that they will fund provision of regulatory consumer protection measures.
Chapter 4
Q5: Do you agree with our proposed application of the T&C regime?
The training and competence requirements seem fair and we see the obvious value of a greater level of competence for those who make personal recommendations to consumers. We are keen, however, that the skills, knowledge and experience are in evidence for regulated activities. CAB evidence indicates that consumers expect that their insurance requirements will be covered and, when claims are refused, this is often because the policy was mis-sold.
Q6: Do you agree with our proposals to apply client money requirements to CTI firms that do not have risk transfer agreements in place?
Citizens Advice is keen to see consumers’ money protected and we agree the need to ensure this is always covered within the regulatory rules. Protection of consumer deposits is a core criterion under the Office of Fair Trading’s (OFT) business to consumer codes approval scheme, which was put in place following the Enterprise Act 2002. This criterion has always been strongly supported by consumer groups.
We are not familiar with the detail of the risk transfer agreements referred to in paragraph 4.15 and would expect FSA to ensure they are adequate to the task if they are to stand as an acceptable alternative to the usual protections required for ‘client money’.
Q7: Do you agree with:
1) our proposed requirement for capital resources for a CTI firm not holding client money; and
2) our proposed requirement for higher capital resources for CTI firms that hold client money?
We agree that there is more risk where consumers’ money is held. We have also supported the principle that the same regulation should apply to bundled travel insurance and to stand-alone products.
Q8: Do you have any comments on how our proposed requirement for capital resources sits with those already required?
The proposals will need to fit with two very different product sales, package and non-package holidays.
We note the discussions FSA has had with those in the travel sector and agree that the package holiday regulations do not appear to protect monies paid for bundled travel insurance. The consultation does not mention the division that exists between holidays defined as a package, where elements of a holiday such as travel and accommodation are purchased as one product, and the separate purchase of travel or holiday elements which are not covered by package holiday regulations. In particular, recent EU consultations have discussed the growth of internet purchasing of flights and accommodation, where these may be separate purchases that are not covered under the current scope of the Package Holidays Directive. The EU review of the consumer acquis raises the issue of the lack of repatriation and insolvency protection for consumers buying holidays which are not covered by the Package Holidays Directive. Insurance is often offered as an add on to both package and non-package travel/ holiday products. Both types of purchase will be covered by the new FSA regulation.
The relevant requirements for protecting funds under the regulations for package holidays are designed for insolvency and repatriation. They seek to protect consumers’ money against the risk of the company becoming insolvent when the holiday, or part of it, has been paid for. This was seen as necessary because consumers commonly paid substantial deposits when booking a holiday and completed payments significantly before traveling. As consumers have had no control over when payment is passed on to hotels airlines and others providing elements of the package holiday, if the travel business ceased to trade they could be without a holiday or might end up paying twice to secure their holiday. A further very important element of the Package Holidays Directive is protection for consumers who might be stranded at their holiday destination if an airline ceased to trade. The security required for package holidays is required in order to ensure repatriation.
It may be that there is scope for monies required under FSA regulation to be added to the financial provisions required under package holiday regulation. Provided relevant monies can be properly identified for the purposes of regulation, this might be an easier transition for travel companies that will now be FSA regulated. This will not be relevant though for the non-package sector, where prudential requirements have not been made until now.
Q9: Do you agree with our proposal to apply a minimum PII requirement to all CTI firms?
Q10: Do you believe Option 1 or Option 2 is an appropriate level of PII taking account of the potential risks posed by CTI?
We see the relevance of Professional Indemnity Insurance, as described at paragraph 4.24 but cannot comment on the level of risks that will inform whether option 1 or option 2, on page 25, best responds to the likely risks.
Q11: Do you have any views on:
1) the cost of PII for CTI firms;
2) the ease of CTI firms being able to obtain PII and the capacity in the market; and
3) the size and range of customer claims relating to CTI?
Please see the range of CAB cases above.
Q12: If you are a general insurance firm would you consider it inappropriate if CTI firms had lower PII requirements than you, as both CTI firms and general insurance firms will be part of the same FSCS broad class?
Citizens Advice is a consumer organization and so unable to comment.
Q13: Do you agree with our proposed application of the reporting requirements?
Yes. The appropriate Retail Mediation Activity Returns and the Complaints Returns from all those conducting regulated activities with consumers should provide a valuable insight into how the market is working. We hope that FSA will feed this insight into the debate across the EU on the future of regulation in the travel and holiday markets.
Chapter 5
Q14: Do you agree with our proposal to apply the ICOBS provisions for general matters, including financial promotions, to CTI?
We see consumer protection value in the conduct of business rules being applied to financial promotions.
Q15: Do you agree with our proposal to apply the new ICOBS disclosure provisions to CTI?
We support application of disclosure rules but have some concerns.
We agree with the approach, at paragraph 5.14, that applying ICOBS where the same issue is already covered by existing relevant legislation makes sense. We also see the very real value of consumers being told about FOS, as described in paragraph 5.15. We are not, however, convinced that applying Insurance Mediation Directive consumer protection requirements to CTI and to direct sales for holiday/ travel insurance is other than a lost opportunity to improve transparency for consumers.
Whilst paragraph 5.16 confirms that fees must be disclosed and consumers can ask about commissions, it seems unlikely that consumers would think to ask this question when their focus is on buying a holiday.
Q16: Do you agree with our proposals to make CTI subject to the guidance on eligibility and the disclosure of material facts, and the high-level suitability rule?
We are not sure that the high level rule is enough.
We agree there will be a likely benefit in subjecting CTI to guidance on eligibility and on the need to disclose material facts. We are concerned, however, that the requirements detailed in paragraphs 5.19, 5.20 and 5.21 are weak. They indicate what a firm should do rather than a requirement that it must perform to these standards. The evidence we receive from CAB frequently shows that consumers have not understood what they are and are not covered for. This indicates to us that consumers are not making informed choices and are reliant on business to be quite specific about exclusions and the information considered by insurers to me material.
Q17: Do you agree that these ICOBS product disclosure rules should apply to CTI?
Disclosures is very welcome and will be helpful but please see our comments above concerning whether this high level approach is sufficient for the travel insurance sector.
Q18: Do you agree that cancellation rights should apply to all CTI contracts, except for contracts of less than one month?
We are very concerned that cancellation rights do not apply across the board.
The paragraphs on cancellation (5.28 – 5.31) highlight that there is a need for consumers to have the opportunity to review the purchase but that the cancellation rights do not apply to face-to-face sales nor to policies of less than a month’s duration. The problem with face to face contracts is that the consumer’s main focus is the holiday, rather than the insurance policy and whether it will cover their needs. The question posed as Q18 fails to make clear whether these sales would be covered. Further, whilst policies taken out for a specific holiday of less than a month may well provide cover up to a month there is no reason to suppose that this will always be the case. In providing this exclusion from cancellation rights we fee the industry is invited to redesign the product to ensure it can be outside scope.
Q19: Do you agree with our proposals not to apply the IMD requirements for detailed status disclosure, disclosure of the scope of service and demands and needs statements?
We appreciate the point that the Insurance Mediation Directive does not apply to connected travel insurance, but since these insurances are often bought as an add on, rather than being specifically shopped for, the scope of service information would seem to be important. Paragraph 5.4 seems to support this. Consumers need to be able to access information about whether they are being sold the product purely because there are links with a particular insurer. The proposed text at Annex D seems to avoid this. Bringing in at least the third bullet under paragraph 5.33, the statement of demands and needs, seems to us a valuable tool to increase consumers’ awareness of what they want to insure against and the exclusions that might defeat this objective. It seems likely this promotion of consumer awareness would make a real difference to how consumers view and value insurance.
Chapter 6
Q20: Do you agree with our proposal to bring CTI firms into the Compulsory Jurisdiction of the FOS and make them subject to our complaints-handling rules in DISP?
Yes, we see access to FOS as a major reason for bundled travel insurance to be included under FSA regulation.
Our only concern is that the eight weeks available to firms to resolve matters themselves, before any referral for FOS to begin its work, can cause consumers hardship. Specifically this may be the case where the dispute concerns large medical bills.
Q21: Do you agree with our proposal that CTI firms should be subject to FSCS?
Yes. The Financial Services Compensation Scheme, together with FOS, are a huge benefit for consumers who might otherwise find they are at the bottom of the pile when a business that owes them money gets into financial difficulties. We would like to see this sort of arrangement available over the much wider consumer marketplace too.
Q22: Do you agree with our proposal that CTI firms should fall into the general insurance intermediation sub-class?
This appears to be the sensible course.
Chapter 7
Q23: Do you agree with our proposed transitional arrangements for brochures?
It seems fair to us because it may help consumers if there is a media/ communication strategy to help consumers realize that all the information may not be in the brochure they have, during transition.
Q24: Do you agree that transitional provisions are not needed for cancellation or status disclosure?
We agree that firms selling Connected Travel Insurance should be able to tell consumers about these new rights, as suggested in paragraph 7.11. Please also see our response to Q 23.
Q25: Are there any other areas where we should provide transitional provisions?
We are not aware of other areas of concern in relation to transition.
Chapter 8
Q26: Do you have any comments on our CBA?
We agree that FOS and FSCS are likely to be cheaper than smaller dispute resolution schemes and that they are a significant benefit for consumers.
Annex C
Q27: Do you have any comments on our compatibility statement?
We agree with the comments under consumer protection, public awareness and market confidence. The proposals appear to be in line with FSA’s statutory objectives.
Social Policy contact: Susan Marks Susan Marks
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