Call for evidence
The Citizens Advice bureaux (CAB) network is the largest independent network of free advice centres in Europe, providing advice from over 3,200 outlets, ranging from GPs’ surgeries, hospitals, community centres, county courts and magistrates courts, and mobile services both in rural areas and to serve particular dispersed groups. Citizens Advice also currently acts as the UK European Consumer Centre (ECC) providing advice and information helping consumers to resolve disputes within the European Union.
The service has two equal aims:
- To ensure that individuals do not suffer through lack of knowledge of their rights and responsibilities or of the services available to them, or through an inability to express their needs effectively;
- And equally, to exercise a responsible influence on the development of social policies and services, both locally and nationally.
Citizens Advice is pleased to have this opportunity to respond to the Treasury’s call for evidence in relation to travel insurance, as part of the review of regulatory provision promised in 2003. We believe that the provisions of the UK’s transposition of the EU Insurance Mediation Directive should now be extended fully to this sector.
In 2005/2006 Citizens Advice Bureaux (CABx) in England, Wales and Northern Ireland reported 1,946 enquiries relating to travel and holiday insurance. CAB evidence illustrates the consequences for consumers of buying travel insurance without adequate pre-purchases information as to whether they would be covered in the event of a claim. We believe that this reduces consumer confidence in the travel insurance market.
In November 2006 we provided evidence to the Treasury Select Committee inquiry into the scope of FSA insurance regulation. A copy of that submission is attached but in our submission we mainly focussed on extended warranties. We are grateful for the opportunity to add further evidence on travel insurance and have responded, below, to the three areas where the Government has sought views.
1) The factors to be taken into account when assessing whether travel insurance sold alongside a holiday or related travel should be subject to FSA regulation;
We see two essential factors in deciding whether travel insurance sold alongside a holiday or related travel should be subject to FSA regulation:
- whether consumers are suffering detriment as a result of the provision of insufficient or insufficiently informed information; and
- whether there is any significant justification for excluding holiday/ travel insurance bundled with another purchase when those purchases that are sold separately do attract FSA regulation.
Citizens Advice shares the concerns raised in this consultation about the bundled sale of products. We believe that where travel insurance is sold with a holiday there is potential for consumers not to be given the key facts they need in order to make an informed purchase. In particular, our evidence suggests that information about pre-existing medical conditions is unclear. This results in our clients believing that they are covered for holiday cancellations and for medical and associated costs when they are not.
Bundled products are sold on the back of another purchase and consumers are less focused on the parts of the transaction that are agreed in addition to the main purchase. The results we see in evidence from CABx is that the bundled items often represent poor value and their detailed terms are not fully appreciated at the point of sale.
The issue of bundling causing consumer detriment in the insurance field is not new. In the field of extended warranties an OFT study and a subsequent Competition Commission inquiry has resulted in legislation to protect consumers when they buy domestic electrical appliances. The Supply of Extended Warranties on Domestic Goods Order 2005 recognizes that consumers’ attention is focused on the main purchase at the time when the bundled or linked insurance is sold. For travel insurance sold with a package holiday or other travel products the same argument applies. It is the holiday or travel that the consumer has decided to buy and the insurance is often an afterthought.
Another commonly bundled product is credit sold to finance a purchase of other goods and services. Again the focus is on the main purchase. Credit regulation has detailed requirements for wording designed to warn the consumer of the nature of the contract, including titles at the head of documentation and boxes within which the consumer must sign, which recognize the need for consumers to be properly informed.
Bundled insurance products have also caused problems when sold as Payment Protection Insurance (PPI) to protect credit payments. The consumer detriment that has resulted where our clients have not appreciated the terms for cover was such that we made a super-complaint to OFT in September 2005. A copy of this report, ‘Protection Racket’, is also attached. The super-complaint is currently the subject of investigation by the Competition Commission and by the Financial Services Authority.
We believe that there is evidence of consumer detriment that would be alleviated if the current exemption for bundled travel/ holiday insurance were removed and cannot see the justification in treating one part of this market differently from another, when both sell the same product.
2) Evidence of consumer detriment in this area;
An essential element of an insurance sale is that the insured understands the scope of the cover being purchased and chooses a level of cover that addresses those risks they wish to be protected for. CABx report that clients are only aware of the detail when their travel insurance fails to cover them and they have tried, unsuccessfully, to make a claim; as in the following cases:
An elderly CAB client from was sold travel insurance as an add on when she bought a coach holiday. She was just asked if she wanted insurance. No explanation of the terms was given. When a sudden illness caused her to cancel the holiday the claim was refused. The insurers claim the illness was a pre-existing condition, which she disputes.
A CAB client from Surrey was refused a claim when he had to cancel a package holiday, due to the death of his father. He had taken the travel company’s insurance and was only asked about the health of those traveling. When the bureau challenged the insurers they were told the terms excluded any claim: “arising directly or indirectly as a result of a pre-existing medical condition relating to you, your traveling companions, a relative or close business associate of yours or your traveling companions, or the person with whom you have arranged to stay whilst on the trip.” His father died of a heart attack, which the doctor says was caused by a valve blockage but, as he was taking medication for high blood pressure, the company claims this should have been declared. The bureau commented that the bundled insurance had given their client a false sense of security.
A London CAB commented on the need for the terms of holiday insurance to be much clearer about exactly what is being covered. Their client’s six year old daughter had suffered a serious kidney infection and been hospitalised when the family was on holiday in France. Only when they tried to claim for the 20% of hospital fees they had been charged and the additional accommodation for the family, whilst she recovered, were they told that two urinary infections the child had had in the past should have been declared. They had only been asked about existing conditions and wanted to take their claim for the £600 fees and the accommodation costs to the Financial Ombudsman’s Service.
A CAB client in the Midlands cancelled a holiday when his wife became ill. Their doctor advised they postpone the holiday until the consultant had diagnosed the problem. When his claim was refused the bureau commented on the need for a better explanation of what exactly is and is not covered when the insurance is taken out.
A CAB in Essex reported their client had not been told there was an exclusion affecting anyone with a pre-existing mental health problem when they bought insurance from their travel agent. The client has a history of poor mental health and, although his claim was due to influenza and nothing to do with his mental health, the exclusion resulted in his claim being refused.
We believe that these cases would have benefited from FSA code of business rules, particularly in relation to marketing, disclosure documentation and claims handling requirements.
CABx also report that older consumers are experiencing problems in accessing travel insurance. CAB clients are being refused travel insurance cover specifically because of their age. Whilst this is not an issue on which evidence is currently being sought by HM Treasury, we feel it is relevant to the wider debate on insurance regulation.
3) Options for regulation going forward, including evidence on the costs and benefits associated with each option.
The options for regulation are either the inclusion of bundled travel insurance under existing FSA rules for general insurance or self-regulation. Citizens Advice strongly favours option three in the Treasury’s call for evidence document. We believe the other options are inadequate to meet the consumer protection needs of our clients. We are not in a position to comment on the costs to business of each option.
We are keen to see travel insurance covered by the Financial Services Authority (FSA) in all cases and believe that consumers are not aware that when cover is sold by a travel agent the level of protection is substantially reduced. It seems to us that failing to cover bundled holiday insurance sales under FSA requirements has resulted in the sale of unsuitable products because key facts do not have to be highlighted by sales staff. This is a requirement under FSA rules, as it has been since January 2005 when FSA began regulation of other general insurance selling. Further, we believe that without regulation sales staff will receive inadequate training on insurance sales.
Whilst we appreciate that the travel industry has been keen to rely on voluntary codes of practice, as an alternative to legislation, we are not convinced this is enough. As illustrated above, the selling of unsuitable travel insurance is a very real problem. Whilst a code of practice might deal with there is no guarantee it would do so. There might also be a risk in option two for a gap to emerge due to a change being made to the content of a code after that code’s approval to specific standards. Codes that do not seek OFT code approval under the Enterprise Act 2002 are not required to conform to a detailed set of criteria designed to tackle consumer detriment in that market, as required under option two. The Association of British Travel Agents (ABTA) had OFT approval but has recently decided to withdraw from the OFT code approval process. This, we feel, illustrates how easily codes can be changed to suit the needs of code members, even when this action acts against the interests of consumers. We doubt that a code of practice can be considered robust enough for the regulation of bundled travel insurance and consider that option two, requiring relevant codes to meet certain standards, has already been shown to fail. ABTA has decided not to comply with OFT code approval requirements.
There is a further advantage to the FSA regulatory route. Consumers would then gain more immediate access to the Financial Ombudsman Service (FOS) in the event of complaints such as those detailed above, where CAB advice was sought. This could be achieved without having first to go through the separate and often time consuming dispute resolution provided within a code of practice. FOS can look not only at the terms of the insurance contract but also at what is fair and reasonable. As described in the consultation document, this alternative dispute resolution would be free to consumers. It is our view that this acts to help redress the balance between individuals and the insurance companies it would otherwise be financially very difficult for them to consider challenging.
Parliament is currently considering the Consumer, Estate Agents and Redress Bill. This provides for a utilities ombudsman to tackle disputes between fuel and postal providers and their customers where internal company complaints mechanisms have failed. This process is expected to apply to water and sewage services in future. Estate agents are also required to join an ADR mechanism. A failure to include bundled travel insurance under FSA regulation would seem therefore to place it amongst a shrinking number of purchases where consumers are denied access to ADR.
We hope that the Government will recognise the need for regulation of all travel insurance, under the single provision of FSA regulation, as the most straightforward, clear and consistent solution.
Social Policy contact: Susan Marks susan.marks@citizensadvice.org.uk
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