The FSA's consultation paper describes its proposed regime as
being lighter than regimes governing other forms of insurance
mediation; but it also expects it to deter most travel agents, tour
operators and airlines from selling CTI.
"We consider that many travel firms may stop carrying on CTI,"
the paper states. "Out of a market of around 3,200 travel firms we
believe that only a fraction are likely to incur the costs of
becoming authorised or regulated as ARs [Appointed
Representatives]."
FSA research suggests that fewer than 200 travel firms are
likely to become authorised. "Irrespective of how light the regime
we apply to these activities, it is clear the application fees
alone are likely to deter many firms from choosing this option," it
said.
Connected travel insurance is currently excluded from the FSA
regime. Travel insurance bought separately from travel or
accommodation, however, is fully regulated.
But, according to a February 2007 report by the House of Commons
Treasury Committee, consumers buying CTI do not really understand
the product whereas those buying stand-alone travel cover are
generally better informed. They also have access to statutory
remedies and compensation regimes should things go wrong.
The new regime will come into effect on 1st January 2009. Long
before then, firms selling CTI will have to decide whether to apply
to become fully authorised by the FSA; to become an appointed
representative of another authorised firm; or to limit their role
to effecting introductions and distributing promotional
material.
Authorisation would mean meeting similar capital resources
requirements and obeying the same client money handling rules as
firms selling general insurance. The FSA also wants to introduce
minimum requirements for professional indemnity insurance, but has
not yet decided what those should be.
The FSA has tried to reduce the regulatory burden where it can –
for instance, by not requiring CTI firms to provide a full status
disclosure to customers. But some of the same conduct of business
rules would apply, including the need to take reasonable steps to
ensure the policy is suitable and the customer eligible to make a
claim under it.
The new regime would also mean CTI-related claims for
compensation could be taken to the Financial Ombudsman and, if the
firm is in financial trouble and unable to meet its liabilities, to
the Financial Services Compensation Scheme.
The final rules are expected in May or June 2008, but the FSA
says it will start accepting applications for new authorisations
from 30th June 2008. Firms wishing to continue selling CTI after
the 1st January 2009 deadline will need to submit their
applications by or on 15th November 2008.
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