A recent Which? report highlighted the practice of holiday companies automatically opting their customers in to the purchase of travel insurance while booking their flight, accommodation or holiday package. The practice was naturally portrayed as negative to the consumer with little consideration as to the impact of removing opt-out as a sales practice.
In recent years, the removal of pre-ticked boxes from airlines has influenced the business models of no-frills airlines to the point that travel insurance is no longer seen to be as valuable a revenue source as it once was. Instead, the simplicity of charging for baggage, boarding cards and other add-ons has become common practice.
In 2011, the EU Consumer Rights Directive was confirmed and must be implemented by member states before December 2013. In essence, it is designed to give consumers more protection when transacting over the phone or the internet. The consequences are likely to also impact the business models of many online retailers, including insurance providers.
Key rights to be granted to consumers will include:
– Customers must give express consent to the inclusion of any ancillary products or services. If consent is not given, consumers will be entitled to a refund. No pre-ticked boxes.
– Credit card fees cannot be higher than the actual cost of the purchase
– Telephone calls must be charged at the standard rate
– Retailers must advertise the full price of the product including all unavoidable fees or charges. If not, the customer does not have to pay these charges.
– Refunds in full, including any delivery costs, will need to be provided within 14 days rather than 30 days.
This drive to transparency is undoubtedly a positive for the consumer and will encourage trust in retailing. However, there is a risk that reluctant purchases such as travel insurance will not be brought to the attention of customer at the point of sale of the flight, accommodation or holiday when they are most likely to buy. Equally, we may see an upward movement in commission requirement or basic premiums as direct providers struggle to recover their cost of administration and delivery.
In the long-term, as the red tape around privacy, regulation and consumer rights increases, travel insurance and low premium insurance products may become too costly to administer when compared to household and motor insurance.
Equally, we may see a continuation of the fall in travel insurance penetration with customers forgetting to buy before they fly. The advent of FSA regulation saw a marginal reduction in penetration from circa 83% to 75% in the last few years. With travel providers also seeing costs of selling travel insurance increase, they are already focussing more on their core products with customers being introduced to travel insurance providers post-sale.
Naturally, this is taking a pessimistic view but, with so many consumer champions pointing out the benefits of adding this legislation, someone needs to add a word of warning. As a mentor once said to me, it is better to hope for the best but prepare for the worst.
Greg Lawson, Head of Retail at Columbus Direct
