News

CONFUSION reigns over a loophole in insurance regulation which could mean agents and operators will have to stop selling car hire - or face expensive and complex Financial Services Authority regulation.

The FSA said last week the sale of pre-paid hire car insurance, sold as standard with rentals, is outside ABTA’s insurance sales regulation and will come under FSA control. ABTA is to take over travel insurance regulation for agents from January 14 2005.

The problem occurs because car insurance is not classed as holiday or travel-related insurance and is therefore outside ABTA’s

regulatory remit.

The industry fears the omission could cost agents a “massive” revenue stream.

ABTA head of financial services Mike Monk admitted he was clueless as to how the situation had arisen.

“I have no idea why the FSA has distinguished car hire outside of the exclusion.

“As far as I know nobody has been aware of this before. I find it very difficult to understand. It’s an unreasonable standpoint,” he said.

The loophole came to light in a letter

from the FSA to Newman Street which outlined exclusions from ABTA’s opt-out of the regulations. According to the FSA, standard car insurance is not “ancillary”. Therefore, it is not classed as a “connected contract” - essential for ABTA’s opt out to apply. Stand-alone insurance sales are also ruled out for the trade.

The FSA wrote: “Travel agents and tour operators offering stand-alone insurance or the pre-purchase of hire car insurance are liable to be regulated for that aspect of their business at least.”

Car rental operators were confused by the news. Holiday Autos sales director UK and Ireland Ian Coyle said the revelations were “astounding” but was unable to comment until the broker fully understood the situation.

“Car rental needs to be included as part of ABTA’s insurance regulation, otherwise this will strip out a massive earnings stream for agents,” he said.

“We will ensure travel agents are able to sell car hire with insurance come January.”

Alamo marketing director Sally Hinds warned it would increase the strain on margins for the trade.

“Agents and operators are already under tremendous pressure to look for other revenue streams.

“Car hire is a very lucrative ancillary, which if lost would put even more pressure on the travel industry.”

An FSA spokesman conceded it was difficult to clarify specifically which categories of car hire insurance its ruling applies to.

“Some people want the answers to the universe but sometimes you have to go with the flow,” he said.

However, he said it applied to a standard, fully comprehensive package, “typically what most people have for their own car”.

He added the FSA would respond to ABTA once it is contacted by Newman Street.