Plain speaking

Determining the requirements to be met by holiday or travel insurance providers is not a straightforward exercise. This is surprising given that it is an accepted growth area. Even so, it is largely categorised as 'general insurance' with home and motor car policies and therefore the requirements largely focus on the clarity of the information given and not on the selling techniques adopted.

Holiday insurance can typically come in one of many guises: single trip (one per year); annual multi-trip (with a maximum); back packing; adventure sports; over 50s/65; and long stay. Insurance for travel to and from a holiday can be covered either in the holiday policy or separately.

Sellers of holiday insurance came under criticism by the financial services ombudsman for mis-selling policies. They had failed to highlight exclusions and complicated terms to consumers prior to purchase, according to the ombudsman. He also said that where there was an exclusion-related dispute, the onus was on the insurer to prove that it had fully explained any exclusion, not on the consumer to scour the small print. This is, however, at odds with the case of Bankers Insurance Co Ltd v (1) Patrick South (2) Mark Ian Gardner [2003] EWHC 380 (QB) in which it was held that the underwriters were not liable to pay damages for injuries caused by a jet-ski collision as the relevant exclusion clause would have been understood by any reasonable person that had read the policy.

In Direct Travel Insurance v Shirley McGeown [2003] EWCA Civ 1606, the Court of Appeal overturned a judge's finding that a consumer could claim under a clause in a single-trip policy that provided for a payout if there was a permanent physical disability which prevented the insured from doing any paid work or from doing all his or her usual activities. The insured could no longer ride horses following an accident on holiday, and the trial judge having arrived at his decision applied the contra proferentem rule to what he viewed as the ambiguous phrase 'all your usual activities'.

Are the courts inadvertently looking to move away from applying the rule to insurance-related disputes, and will pre-policy conversations need to be incorporated into insurance policies to show how the operation of exclusion and/or complicated clauses were explained to the insured prior to purchase?

Guidance for insurers

With a divide between the views of the financial services ombudsman and the decisions of the courts, the code of conduct for insurers from the General Insurance Standards Council and the Association of British Insurers provided some recompense, albeit not binding, with the Financial Services Authority being responsible for regulating standalone policies since 2005.

The handling of insurance claims by insurers is regulated by the Financial Services and Markets Act 2000. An insurer's conduct towards third parties must therefore comply with the FSA's Principles for Businesses and, where relevant, the claims handling rules in chapter eight of the FSA's Insurance Conduct of Business Sourcebook (ICOBS). A breach leads to a firm being liable to disciplinary sanctions.

The FSA's 'ICOB Review Interim Report: Consumer Experiences and Outcomes in General Insurance Markets' (March 2007) found that:

• stand-alone travel insurance is a relativelysmall market compared to products such as home and motor insurance;
• the policies are slightly more complex than the other straightforward insurance policies;
• consumers focus on price rather than content on deciding what policy to buy; and
• the main area of detriment that might be remedied by regulation was unsuitable sales because of unclear information on policy terms, exclusions and optional extras '“ a problem raised by the financial ombudsman in 2001.

Alternatives to taking out a standalone policy and/or claiming can include the following:

• if the tour operator holds an air travel organiser's licence, holiday makers may be eligible for protection where the tour operator goes out of business in terms of the holiday's cost and/or being stranded abroad;
• where holidays are paid for with a credit card and are over £100, a refund may be claimable from the credit provider; and
• some home insurance providers, as a good will gesture, offer free holiday/Europe cover so it may be worth checking if this applies before taking out a holiday/travel insurance policy. Cover may also be given when opening a new current account, or switching, as part of the account package.

The Association of British Insurers, together with the British Insurance Broker's Association and internet-based insurance intermediaries/comparison sites, produced a voluntary good practice guide, 'Ensuring Customer Experiences of Buying Insurance Online' (December 2009), which seems to call for sites to steer away from providinga range of quotes on different policies, to just providing quotes on what the customer has asked for. This is likely to be due to consumers being driven by the price of policies, not the content.

The code also calls for:

• assumptions to be verified by customers;
• more detail to be provided on key/significant exclusions;
• the display of key features before purchase;
• warnings for customers about entering incorrect information; and
• helpful hints not to encourage customers entering details for cheaper quotes.

It seems that the regulation of holiday/ travel insurance rests on influencing the behaviour of consumers so that they understand what they are actually buying, and influencing the behaviour of sellers to ensure that they explain what exactly they are selling. Such behaviours are, however, fraught with two goals which may not always coincide, the cheapest policy vs effective competitive cover.