We welcome the chance to provide comment on this Consultation Paper and to answer the questions specified.

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1 BIBA s Response to Consultation Paper CP07/22 Regulating connected travel insurance 17 th March 2008 The British Insurance Brokers Association (BIBA) is the UK s leading general insurance intermediary organisation. We represent the interests of insurance brokers, intermediaries and their customers and have partner members from the leading companies in the insurance industry. BIBA represents 2,300 insurance intermediaries including 98 of the UK s top 100 insurance intermediaries. Our members handle around half the value of all UK home, contents, motor, travel, commercial and industrial insurance policies. Independent insurance intermediaries distribute nearly two-thirds of all UK general insurance, of which BIBA members account for more than 80%. They also introduce 22 billion of premium income into London s insurance market each year. We welcome the chance to provide comment on this Consultation Paper and to answer the questions specified. BIBA s fundamental view is that firms selling connected travel insurance should be subject to the same regulatory environment as specialist insurance intermediaries and, from a consumer perspective, we believe that the same suite of disclosures should be given, irrespective of where the consumer chooses to purchase their insurance protection. 1. Do you agree with our proposed application of the AR regime? We agree with the proposal to apply the existing policy on ARs to CTI firms. 2. Do you agree with our proposed application of the approved persons regime? We agree that the proposed approach to approved persons is both appropriate and proportionate. 3. Do you agree with the changes proposed to PERG? We agree with the proposed changes to PERG.

2 4. Do you agree with the regulatory fees proposals? We agree with locating CTI firms in the A19 fee block and consider the detailed fee proposals to be appropriate. 5. Do you agree with our proposed application of the T&C regime? We agree with the proposal to apply the same T+C regime to CTI firms that applies to general insurance intermediaries. 6. Do you agree with our proposals to apply client money requirements to CTI firms that do not have risk transfer agreements in place? We agree that CTI firms should be subject to the same client money requirements as general insurance intermediaries. 7. Do you agree with: 1) our proposed requirement for capital resources for a CTI firm not holding client money; and We agree that a CTI firm not holding money should be subject to the same capital resources requirement as general insurance intermediaries. 2) our proposed requirement for higher capital resources for CTI firms that hold client money? We agree that a CTI firm holding money should be subject to the same higher capital resources requirement as general insurance intermediaries. 8. Do you have any comments on how our proposed requirement for capital resources sits with those already required? We have no comments. 9. Do you agree with our proposal to apply a minimum PII requirement to all CTI firms? We believe that professional indemnity insurance is an important component in the suite of prudential regulatory protections and therefore agree with the proposal to apply a minimum PII requirement to CTI firms. Consumer protection is at the forefront of this reasoning, with mis-selling and fraud (e.g. accepting premiums but not actually having insurance in place) being the main exposures. We believe these (particularly the latter in the travel sector) have caused Lloyd's significant problems in the past.

3 10. Do you believe Option 1 or Option 2 is an appropriate level of PII taking account of the potential risks posed by CTI? We believe that Option 1 is the more appropriate level of PII for CTI firms, given that a specialist travel insurance intermediary would already be required to hold insurance in line with Option 1. In standard travel policies there is a personal liability section which will provide usually a minimum of a 2m limit and medical expenses section which will provide a limit of several million, usually at least 5m. This would make option 2 look insufficient in the event of a major uninsured claim, for example a serious liability claim in a US skiing accident. However, please see our answer to Q11 with regard to costing. 11. Do you have any views on: 1) The cost of PII for CTI firms; The minimum premium for PI is currently circa 250 and the majority of CTI firms would fall within the 250 to 1,000 bracket. To date, those with PI cover renewals have seen little change to the availability and cost of PI cover from the introduction of travel insurance. BIBA members have studied a number of specialist travel insurance intermediaries recently, and would estimate that their premium rates are circa 10-20% of the general commercial intermediaries we look at (subject obviously to minimum premiums). Most general commercial firms are paying circa 1% for 5m cover currently, and these travel specialists seem to be paying between 0.1% and 0.2% on fees depending on their size (again, subject obviously to minimum premiums). 2) The ease of CTI firms being able to obtain PII and the capacity in the market; and At present CTI firms will easily be able to obtain PI. PI claims in this area currently are benign and the market is awash with capacity. There are no insurers that we know of who have a restriction in their underwriting guidelines with regard to travel firms, which points to circa 15+ insurers who could offer terms. That said the market is very soft at present. In the event of the market hardening we would estimate an increase in cost which should not be too dramatic. We do not believe insurers will pull out of this class. 3) The size and range of customer claims relating to CTI? Examples of travel PI claims:

4 Client requested and paid for Travel Insurance which was not put in place by the Agent/Operator. No PI cover in place. Total bill to Agent/Operator for consequent claim - 5,000. They were very lucky not to have larger loss! Operator takes booking for All-Inclusive holiday and confirms this in writing to client. Operator then only books holiday on B&B basis. Client is presented with 1,300 at the end of holiday. Cost to insurer Cost to Operator 1,000 (4 x 250 excess). Agent books flight and accommodation for 13 clients going to Tenerife. 2 months before holiday the agent is notified by the airline of a flight time change. Agent forgets to notify clients! Clients arrive at airport to find flight left 2 hours earlier and are forced to take next available flight at cost of 3,500. Clients claim against agent who notifies PI insurer. Insurer declines claim on basis that holiday was sold as a package and the agent declared that 100% of the business was as a Travel Agent. Cost to agent 3,500. There have been very few PI claims in respect of travel insurance for both commercial reasons and the likelihood of success. In most cases, the travel insurance Insurer will absorb the claims cost and allocate against the performance and increase rates as required in future years. As most travel trade policies are provided via intermediaries, Insurers are unlikely to take a case to court against the intermediary in order to then have the intermediary recover from their PI policy who may then have to take the CTI firm to court to recover their costs all too much in most cases if the error is that of a small travel agent without the means to pay. The average size of a direct CTI claim will be small as is limited by the sums insured, usually for lost baggage or camera equipment. Most sums insured, and therefore largest claim amounts are less than a few thousand pounds. Holiday curtailment should feature, but again this is limited to the cost of repatriation which in most cases is inexpensive these days and is limited by the maximum sum insured. PA claims are probably less common but slightly higher value, again - low sum insured's will control maximum downside for insurers. The larger claims will come from the liability sections and medical expenses sections. These will increase dramatically for US exposures. These are potential losses of 1m plus. Also, block policies could provide a higher sideways aggregate exposure (e.g. for school holiday trips etc.) From a PI perspective if the CTI firm has not provided clear information with regard to policy limits, or exclusions such as pre-existing medical conditions then they may be exposed to claims. That said, most CTI firms will not be selling a range of different insurer products but most will work with a single insurer. They may offer different tiers of coverage, governed by price and also type of policy required (annual, single trip, etc). The documentation needs to

5 be clear with regard to policy summaries; if they are currently an appointed representative of a broker/insurer then the CTI firms should be well advised in this respect already. As most of this business will be written under binders, then binding authority administration could potentially cause PI exposures. Fraud is a risk as previously mentioned if CTI firms are accepting risks without having a facility in place. We doubt if CTI firms will have claims settlement authority under these binders, however this is an area of significant fraud exposure if they do. The issue of risk transfer also needs to be addressed in the event of financial failure of the CTI, which is not uncommon in this industry. Policyholders do not want to be left without cover because the CTI has not paid on premiums to insurers. 12. If you are a general insurance firm would you consider it inappropriate if CTI firms had lower PII requirements than you, as both CTI firms and general insurance firms will be part of the same FSCS broad class? Our members feel strongly that it would be inappropriate for CTI firms to be subject to lower PII requirements, especially given the reported high number of CTI firm failure and the predominance of CTI firms holding client money. FSA regulation has been focussed upon retail consumer protection. As the majority of these travel policies are being sold over the counter to individuals on a non advised sale basis then why would the FSA want accept a lower level of PII? Does this not defeat the object of consumer protection? BIBA believe the retail customer should be protected to the same minimum standards irrespective of where they buy their travel insurance from by identical regulatory requirements to the rest of the insurance industry. 13. Do you agree with our proposed application of the reporting requirements? We agree with the proposal to apply the same reporting requirements to CTI firms as general insurance intermediaries. 14. Do you agree with our proposal to apply the ICOBS provisions for general matters, including financial promotions, to CTI? We agree with this proposal. 15. Do you agree with our proposal to apply the new ICOBS disclosure provisions to CTI? We agree with this proposal.

6 16. Do you agree with our proposal to make CTI subject to the guidance on eligibility and the disclosure of material facts, and the high-level suitability rule? We agree with this proposal. 17. Do you agree that these ICOBS product disclosure rules should apply to CTI? We agree that CTI firms should be subject to the same product disclosure requirements as general insurance intermediaries. 18. Do you agree that cancellation rights should apply to all CTI contracts, except for contracts of less than one month? We agree with this approach. 19. Do you agree with our proposal not to apply the IMD requirements for detailed status disclosure, disclosure of the scope and demands and needs statements? We do not agree. We believe that the consumer should be entitled to the same suite of disclosures, irrespective of where they choose to buy their insurance. Having a differential disclosure regime is likely to lead to consumer confusion and potential detriment. We believe that you should apply the rules in ICOBS to CTI firms in the same way that they currently apply to general insurance intermediaries. 20. Do you agree with our proposal to bring CTI forms into the Compulsory Jurisdiction of the FOS and make them subject to our complaintshandling rules in DISP? We believe that it is imperative from a consumer confidence and protection perspective that CTI firms are subject to the Compulsory Jurisdiction of FOS. It is therefore appropriate that the DISP rules are applied to CTI firms. 21. Do you agree with our proposal that CTI firms should be subject to FSCS? We agree that CTI firms should be subject to FSCS. 22. Do you agree with our proposal that CTI firms should fall into the general insurance intermediation sub-class? We agree that CTI firms should fall into the general insurance intermediation sub-class.

7 23. Do you agree with our proposed transitional arrangements for brochures? We believe this to be a prudent approach. 24. Do you agree that transitional provisions are not needed for cancellation or status disclosure? We agree that transitional provisions are not needed in these areas. 25. Are there any other areas where we should provide transitional provisions? We cannot think of any areas where you should provide transitional provisions. 26. Do you have any comments on our CBA? We have no comments on the CBA. 27. Do you have any comments on our compatibility statement? We have no comments on the compatibility statement.