FSA publishes rules for selling travel insurance with a holiday


From 1st January 2009, travel firms and tour operators selling such products, known as Connected Travel Insurance, or CTI, will need to be fully authorised by the Financial Services Authority. Alternatively, they may choose to become an appointed representative of another, authorised firm or limit their role to effecting introductions or providing information.

Dan Waters, the FSA's Director of Retail Policy and Themes, announced the publication of the new rules yesterday.

"Regulation is only seven months away and firms need to make sure they are fully prepared," he said. "We start accepting applications next month and firms are advised to apply early to ensure that they are ready in good time for the start of the new regulation next January."

Travel insurance bought separately from travel or accommodation has been fully regulated since 2005. The FSA hopes that bringing CTI into the regulatory fold will ensure customers are given clear, concise and consistent information about their travel insurance before they decide to buy.

Brochures and application forms for CTI will be treated as financial promotions under the Insurance Conduct of Business Rules (ICOBS) and will need to be clear, fair and not misleading and approved by an authorised firm. CTI firms will also have to meet FSA requirements for training staff, handling client money and capital resources.

Under the new rules published by the FSA yesterday, CTI firms will be required to have professional indemnity insurance to the same minimum level as general insurance intermediaries – €1 million for a single claim and €1.5 million in aggregate or, if higher, 10% of the firm's annual income up to €30 million.

The new regulatory regime also means that complaints brought by consumers and small businesses against CTI firms can be decided by the Financial Ombudsman Service. And in cases where a CTI firm is unable (or unlikely to be able) to meet its liabilities to its customers, they may be eligible to claim statutory compensation under the Financial Services Compensation Scheme.

The FSA believes that only 200 or so travel firms will decide to apply for full authorisation. Applications will be accepted as from 30th June 2008 and must be submitted by 15th November. Those applying by 30th September will qualify for a 30% reduction in the fee.

The FSA is also planning to run an information campaign for CTI customers, including schools and charities, to let them know about their new rights and remedies.