Economic Secretary to the Treasury, Ed Balls, has indicated that a tighter regulatory regime for travel agents selling holiday insurance might be necessary following concerns from consumer groups that this type of travel cover is over-priced, being mis-sold or policies contain too many get-out clauses.

More than 20 million people buy travel insurance every year, and based on consumer research many policies for the same trip offering similar levels of protection can vary in price by more than £200, the Treasury said.

Launching an investigation into the sale of travel insurance, he highlighted the need for travel insurers to be “open and transparent about consumers’ cover in the event of a terrorist incident”.

In a statement to the Treasury Select Committee, Mr Balls gave warning that many consumers bought insurance expecting to be covered for emergency medical treatment, repatriation and continuing carer expenses. “Only 50 per cent of policies provide such cover.” He added: “In recent years, there have been growing concerns from consumer groups and sections of the industry that the market is not working as well as it could, raising questions about whether regulation and appropriate redress should apply to the selling of travel insurance. “We therefore need to get to the bottom of whether travel insurance sold with a holiday is being mis-sold.”

Mr Balls said that one of the options to be reviewed would be whether insurance sold by travel agents should come under the aegis of the Financial Services Authority (FSA), the City regulator. At present, travel insurance sold as a bolt-on to a holiday is unregulated, but the sale of stand-alone cover is regulated by the Financial Services Authority (FSA).

One of the examples given by the Treasury of holidaymakers receiving inadequate information on exclusions was terrorist incidents. Many of the victims of atrocities in Bali and Sharm el Sheikh in Egypt only discovered when it was too late that their policies would not cover medical costs and a flight home.

Mr Balls, cited a Which? report in the summer indicating that only 35 per cent of travel agents asked medical questions, compared with 81 per cent of banks and insurers. Only 19 per cent explained what the policy covered and none outlined what it did not cover. A survey of its members by the Association of British Insurers (ABI) found that 50 per cent of travel insurance policies did not cover medical expenses relating to a terrorist incident.

'The issue here is about both educating consumers to consider the cover they want when they are buying travel insurance and ensuring that consumers are properly informed,' Mr Balls said.

However, a spokesman for the ABI insisted that the incidence of customers walking out of travel agents with the wrong policy was “very low”. He said that it was not the ABI’s place to issue warnings to its members over such issues. “It is a competitive marketplace, and it is up to our individual members as to what they put in a policy and what they don’t.”

The Association of British Travel Agents (Abta), which also gave evidence to the Select Committee, said that its view was that self-regulation “works well to the benefit of consumers and Abta members”, pointing out that the sale of travel insurance was already governed by a code of conduct.
Mark Tanzer, the chief executive of Abta, said: “We believe that our members are not guilty of any significant level of mis-selling, but we know that the Government is keen to ensure that the public is not put at potential risk.

“We will continue to provide the Treasury with all possible assistance so that they can achieve a view that accurately and fairly represents the interests of both the public and our members.”

The government last looked at the issue of travel insurance in 2003 but decided against imposing regulation because of concern over the impact on the cost of package holidays.