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Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2007

I thank the Minister for introducing the order, although I am surprised that the Government are pressing ahead with it. Even those on the extreme wing of the consumerist agenda could not claim that travel insurance is one of the great wrongs in society waiting to be righted by yet more regulation. In 2003, after the Government consulted on the insurance mediation directive, they concluded that in the regulation of travel agents selling travel insurance there was insufficient evidence for gold-plating the directive and increasing the regulatory burden. At that stage, the Treasury found little evidence of consumer detriment and no evidence whatever of systematic actual consumer detriment. Somehow, however, three years later in 2006, the Government reached the view that there were, "““growing concerns from consumer groups and sections of the industry that the market is not working as well as it could””." The source of those concerns was not spelled out, but as is so often the case the Government’s action opened Pandora’s box, which led inexorably to more regulation. The Treasury Select Committee in another place carried out its own inquiries. The summary of its report, issued in February last year, said: "““We conclude that there is significant evidence of consumer detriment in the travel insurance market””." However, that comment was aimed at the insurance industry overall, as the criticisms generally concerned consumer awareness of exclusions and the effects of pre-existing medical conditions. When the Select Committee considered the narrower area of bundle travel insurance, paragraph 19 of the detailed report said only that the committee had received ““some evidence”” of significant consumer detriment. Needless to say, in the Select Committee, the consumer groups were keen to press regulation as a solution, as were some organisations in the insurance industry, doubtless on the grounds that if they had to suffer regulation, others should as well. I fully expect my noble friend Lord Sheikh, who has much experience in the insurance industry, to tell us its view. I cannot see anywhere in the Government’s papers or the Treasury Select Committee’s report any strong evidence to support the imposition of further regulation. We start from the principle that legislation should be considered only when other approaches have demonstrably failed. We have not seen any evidence of widespread failure of the current arrangements, although there are plenty of assertions about the extent of that failure. The Which? report cited by the Minister was based on a very small sample, and complaints levels within the travel industry are generally very low. Therefore, we cannot see the case for the heavy-handed regulatory response in this order. Even the largely risible regulatory impact assessment does not make a case for regulation. The regulatory option is expected to impose one-off costs of up to £8.1 million and an annual cost of up to £5.1 million, and it is expected to yield benefits worth £173 million. The option of strengthened self-regulation will accrue 80 per cent of those benefits, up to £138 million, at a negligible one-off cost and a maximum annual cost of £1.5 million. I thought that the benefit calculations in the regulatory impact assessment were in cloud-cuckoo-land, but, if we take them at face value, the Government’s figures suggest that improved self-regulation is a no-brainer. On a best-estimate basis, the net present value of the net benefit of regulation compared with improved self-regulation is less than £3 million, which is well within the margins of error. The Government’s regulatory solution will bear down heavily on small firms, which is the very thing that the Government keep promising that they will not do. Many travel agents and tour operators are very small businesses operating on slender margins. The vast majority of the members of the Association of British Travel Agents are small businesses. ABTA believes that regulation will drive many more companies out of providing travel insurance alongside travel products. That is what happened when ABTA’s self-regulatory mechanisms were sharpened up after 2002. The Minister hopes otherwise, but that is just hope. If fewer travel businesses sell travel insurance alongside travel products, that will tend to increase the number of people travelling without insurance—it is currently estimated that around 14 per cent of travellers do so—which is in direct conflict with the Government’s policy, as promoted by the Foreign Office, that those who travel abroad should have cover. There is another reason to cast doubt on the Government’s judgment in bringing forward this order. The Treasury Select Committee in another place recommended that regulation be carried out by the Financial Services Authority if the Government were satisfied that the FSA could meet the requirements of consistency across the travel insurance market and of being principles-and-risk-based. The Government’s response was that they were so satisfied. However, the report and the response were written ahead of the Northern Rock debacle last summer. While we do not yet have a full picture of the precise failings of the FSA, it is clear that it did fail. How else can the FSA explain the lack of, or inadequate, monitoring of solvency? Anybody who visits the City will find views, often very strongly expressed, about the FSA’s other failings in banking supervision and its other activities. The FSA is not an organisation on top of its role and therefore able to expand its regulatory functions. It might be willing to do so, but that is not the point. The regulation of travel insurance is clearly not a top priority for any Government. At best, the FSA is overburdened; at worst, it needs a major overhaul. It borders on lunacy for the Government to pile on to such an organisation something that may be in the ““nice to have”” category of regulation but could not be placed any higher than that. It is not too late for the Government to think again about the impact on the FSA. It is not too late for them to reconsider whether they have properly considered the impact on small firms. It is not too late to stop adding yet more examples of gold-plating to that long list of embellished EU directives. I hope that the Minister will say that the Government are prepared to think again.