1. What is connected travel insurance?

Connected travel insurance (CTI) is insurance sold by firms such as travel agents and airlines, to individuals or small businesses alongside a travel product such as a holiday, or a train ticket. CTI can be single trip, yearly multi-trip or extended trip (for example, for a gap year).

2. Who does regulation affect?

It affects travel firms dealing with CTI in the UK. This could include:

• Travel agents
• Tour operators
• Coach operators
• Airlines
• Ferry companies
• Train companies
• Holiday accommodation firms

If you are not authorised by the FSA and intend to carry on CTI you will need to:

• apply for authorisation;
• become an Appointed Representative (AR) at an FSA authorised firm; or
• become an Introducer Appointed Representative (IAR) of a FSA-authorised firm (see question 9).

If you are already authorised by the FSA to carry on general insurance mediation (eg selling travel insurance sold on its own), you are unlikely to need to change your authorisation unless you wish to carry out a new regulated activity (such as advising or arranging) and are not currently permitted to do this.

Why is this happening?

The government decides what activities should be regulated by the FSA. The Insurance Mediation Directive (IMD) only brought standalone travel insurance (ie travel insurance sold on its own) sold by intermediaries into the regulatory scope of the FSA in 2005. The government decided that CTI would not be regulated at that stage, but made it clear that it would review this decision in 2007.

In 2006 the government announced a review into the sale of CTI and following consultation, confirmed its intention in December 2007 to extend the FSA's scope to CTI. In January 2008, Parliament amended the secondary legislation (the Regulated Activities Order) to bring CTI into the FSA's scope from 1 January 2009.

What has the FSA been doing regarding connected travel insurance?

In December 2007, the FSA issued its own consultation paper (CP07/22) on how it proposed to regulate CTI. Consultation closed in March 2008. The FSA has carefully considered the views of all the parties that responded to the paper and has now published a Policy Statement which contains the final rules relating to connected travel insurance. The key issues arising from the consultation were:

• Professional Indemnity Insurance (PII) requirements: The FSA has decided to apply to CTI firms the higher PII requirements described in CP07/22 bringing CTI PII requirements in line with the general insurance limits;
• Transitional arrangements: The FSA has extended the transitional period during which Introducer Appointed Representatives (see question 9) can handle client money in certain circumstances; and
• Requests for further clarification: The FSA will continue to work with the industry and others to ensure a smooth transition to regulation.

What happens now?

The key dates for connected travel insurance (CTI) firms are as follows:

• 30 September 2008 - Deadline for the early application discount
• 15 November 2008 - Deadline for interim authorisation (see question below)
• 1 January 2009 - Regulation begins

If you only intend to give out information or leaflets about CTI and do not plan on taking any further steps to arrange CTI, you may not need to be regulated. You may wish to refer to the Perimeter Guidance Manual and the Regulated Activities Order to establish whether you qualify for exemption from regulation.

What is interim authorisation?

Under the interim authorisation regime, CTI firms who had applied ying for authorisation before or on 15 November 2008 will be allowed to carry on CTI after the new regime comes into force either until the FSA make a decision about their application or until 31 December 2009.

What does FSA regulation mean for my firm?

The FSA has finalised its rules for firms selling connected travel insurance. These include:

• Conduct of business regulation - how firms deal with their customers and what they must disclose.
• Prudential standards - the financial soundness and overall management of firms, including the capital resources and PII that firms must have and how firms deal with client money.
• Reporting requirements - what and how often firms must report to the FSA. • Complaints and redress - how firms should deal with complaints and access for customers to the Financial Ombudsman Service.
• Compensation - access for customers to the Financial Services Compensation Scheme where a firm becomes insolvent.
• FSA fees - the costs to firms of being authorised: including fees to the FSA and to the Financial Services Compensation Scheme and Financial Ombudsman Service. The Policy Statement outlines these requirements in more detail.

Will I need to be regulated?

If you advise on, arrange, or administer connected travel insurance you will need to consider four questions when deciding if you should be regulated and, if so, what level of regulation might be appropriate for you:

• Will I be carrying on a regulated activity in the UK?
• If so, will I be carrying on a regulated activity by way of business?
• If so, will my regulated activity be able to benefit from an exemption?
• If not, what options do I have? (See question 9)

More details on what we mean by advising on, arranging, or administering and on the questions outlined above can be found in Annex B of the Consultation Paper and in the Policy Statement.

You may also be interested in the section on the FSA website which highlights different business scenarios and outlines whether you would be need to be regulated - eg in order to carry out certain actions such as giving out leaflets or passing customer information on to an FSA authorised firm.

What regulatory choices are open to me?

From 1 January 2009, connected travel insurance firms carrying out an activity which requires them to be regulated by us will need to consider which of these options is best suited to them:

• FSA authorisation
• Appointed Representative
• Introducer Appointed Representative
• Unregulated introducer
• No longer offering connected travel insurance.

Firms wishing to be authorised in their own right will deal directly with us. As an alternative to being authorised, you may wish to become an Appointed Representative (AR) or an Introducer Appointed Representative (IAR). To do this, you will need to enter into an agreement with a 'principal' that is itself authorised by us. Principals take regulatory responsibility for their ARs and IARs and must ensure that they meet our requirements.

Firms that become unregulated introducers or stop selling connected travel insurance do not need to become regulated by us. Further information about your regulatory choices can be found in the Policy Statement.

How much will it cost?

If you become directly authorised by the FSA, you will have to pay an application fee, then a fee every year to cover our costs. You will also be subject to levies for the Financial Services Compensation Scheme, and the Financial Ombudsman Service. (The latter two are paid directly to the FSA in conjunction with the FSA's yearly fee.) We propose that connected travel insurance firms will pay the same fees as other insurance intermediaries. This would imply an application fee of £1,500 for most firms.

Fees calculator

Where can I get some help in deciding what to do?

If you have any questions about FSA regulation of connected travel insurance or your regulatory choices (see Question 9), you can ring our Contact Centre on 0845 6069966 or e-mail fcc@fsa.gov.uk. Members can get more information about connected travel insurance from their trade bodies. Some examples are:

• The Association of British Travel Agents
• The Association of Independent Tour Operators
• The Association of Travel Insurance Intermediaries