Travel insurers are expressing concern that the expected ban on travel agents' sales of compulsory insurance, soon to be announced by the Department of Trade and Industry, will backfire and fail to protect the consumer.
At present, travel agents account for around 58 per cent of all travel insurance sold, with tour operators notching up another 19 per cent. According to the Monopolies and Mergers Commission, the top four operators made almost £130m on travel insurance in 1996 – more than four times the operating profit they made on selling holidays.
The Consumers Association magazine Which? investigated over 150 travel policies and concluded that insurance bought through travel agencies can cost as much as 70 per cent more than that bought through direct insurers.
What is concerning some insurers is that travel agents and tour operators will get round the ban simply by including the price of the insurance in the total holiday cost and offering "free" cover.
Direct Line Travel Insurance managing director Graham Moss says: "Unless the Government takes further action over anti-competitive practices in travel insurance sales, consumers will continue to pay too much for possibly inadequate cover."
Moss wants to see the ban extended to prevent tour operators from bundling travel insurance in with the overall price of a holiday package.
"We don't think the Government is going far enough," says Moss. "Even after the tie-in has been consigned to the dustbin, travel agents and tour operators will still be allowed to continue to operate in a matter which, in effect, restricts consumer choice and makes the real cost of a holiday and its related insurance far from transparent.
"The shift to free insurance is a sham. Travel insurance has a real cost which the consumer inevitably has to bear at some stage. What actually happens is the cost of the insurance policy is built into the overall cost of the holiday. The idea that they can now genuinely offer this insurance free of charge is highly questionable," says Moss.
Brent Escott of travel insurer Club Direct expresses similar concerns. "The move by the DTI follows a growing number of complaints from holidaymakers that agents are effectively forcing them into buying their own high-cost travel insurance, on which they earn lucrative commission," he says. "If travel agents respond to the new ruling by adding the price of the insurance into the holiday cost and then claiming it is 'free', customers who do not want it will have no choice."
While sympathising with the insurers' concerns, there is a real problem and no easy solution.
It is not unreasonable for a tour operator to require the holidaymaker to have travel insurance of some sort, whether purchased as part of the package or bought elsewhere.
If a holidaymaker on a package deal is seriously ill or injured, they expect the tour operator to organise medical treatment and, in some cases, bring the person home – either early on a scheduled flight or, if the injury is serious, they might need an air ambulance.
Without travel insurance cover, this cost might fall to tour operators, which could hardly risk their reputations by refusing to bring a customer home unless the cost was paid up front.
Moreover, there are some positive advantages if travel insurance is included in the cost of the package – provided that the customer is not overcharged.
With a blanket policy covering all holidaymakers, there would be no selection against the company and, in theory, costs could be massively reduced. The problem is that we know the tour operators will not do that. They are likely to continue to overcharge at the customers' expense. There is no easy answer.