FCA introduces new travel insurance rules

The FCA published a policy statement (38 page / 686KB PDF) following up on earlier findings that consumers with pre-existing medical conditions – particularly more serious conditions such as cancer – can struggle to find insurance firms willing to provide affordable travel cover.

The policy statement, issued in the wake of a consultation last year, outlines requirements that will affect all firms offering travel insurance, including insurers, intermediaries and appointed representatives.

Firms will now have to point consumers with pre-existing medical conditions to a directory of specialist providers, either at the start of a policy, on renewal or on mid-term adjustments.

The FCA said consumers with more serious conditions could save around 40% if they go to a specialist provider, and said the changes would apply to around 1% of travel insurance customers.

The signposting will be required when a consumer is declined or not offered cover, or has their cover cancelled mid-term due to a pre-existing condition; when a consumer is offered cover that has an exclusion for a pre-existing condition that cannot be removed; or where there is an increase in premium attributable to the pre-existing condition risk of £100 or more.

The original proposals required firms to refer consumers to the directory where there was any pre-existing condition loading on their premium, but this was raised to the floor of £100 following concerns raised by stakeholders. However, if a firm is unable to identify the value of the loading it will have to signpost all consumers with a pre-existing condition to the directory.

Firms will also be required to explain the potential benefits of accessing the directory and inform the consumer why they are receiving the notification.

“The new signposting rules serve as an example of the FCA's focus on the protection of vulnerable consumers across financial services sectors,” said insurance expert Sophia Hytiris of Pinsent Masons, the law firm behind Out-Law.

However, she said the rules could cause other challenges for firms.

“The new signposting rules may catalyse an array of additional problems for retail travel insurance organisations. Where firms are prevented from providing a quote to consumers and they must instead signpost consumers to the directory, they could lose business or future business from consumers,” Hytiris said. 

Intermediaries will only have to refer consumers to the specialist directory if all insurance firms from which they have obtained a quote for the consumer either decline cover, impose an irrevocable exclusion or satisfy the loading criteria.

The FCA guidance also tells firms selling travel insurance policies which exclude pre-existing conditions that they should tell consumers whether these exclusions can be removed, and make sure the consumer knows how they can do this.

Firms must also assess the risk associated with medical conditions, and calculate medical condition premiums using reliable information that is relevant to the risk.

The FCA also said that firms need to examine their obligations under the Equality Act 2010, by taking reasonable steps before offering a policy with a very high premium to consider whether their medical screening process is adequate; if the high premium is intended to indicate an unwillingness to accept the risk; or if the high premium is because the risk associated with that medical condition is outside of the insurer’s risk appetite. In such circumstances firms are advised to signpost consumers to the specialist directory instead of offering a quote.

“This could result in a change of practice for many firms who opt to adhere to the FCA guidance which could be arduous and costly for relevant firms – particular where they have existing mechanisms and procedures in place to assess risk and calculate premiums,” Hytiris said.

The regulator is working with the Money and Pensions Service to create a directory of medical cover firms which will give sufficient information to enable consumers to make an informed choice, be up-to-date and impartial. The directory is expected to be ready by the summer.

Other organisations will be able to create alternative directories, with firms able to signpost consumers to their preferred directory or give details of all those available.

Firms will be required to include details of the directory on their website within 30 days of becoming aware of the directory going live. All other requirements should be implemented by 5 November 2020.

Hytiris said: “The changes require relevant firms to act with haste. This exercise could prove administratively cumbersome and may take some time to transpose in practice."

“Relevant firms will also have to remain alert to the FCA’s proposed directory’s release date in order to include the directory’s details on their respective websites within 30 days. They may also have to ensure that the relevant information is distilled to all relevant third-party agents that offer their travel insurances,” Hytiris said.

The FCA said it would carry out a post-implementation review in 12 to 18 months, to assess whether the new guidance has delivered the desired outcomes.