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Holiday Insurance

Volume 348: debated on Wednesday 12 April 2000

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12.30 pm

I am grateful for the opportunity to debate a subject that was brought to my attention by a constituent, Mr. Carter, who came to see me a few weeks ago. Mr. Carter is 79 years old. His wife was gravely ill for several months, before having surgery that was, thankfully, successful, and Mr. Carter thought that it would be sensible for them to recuperate on holiday in Malta. Mr. Carter surfed the internet—people are quite advanced in such matters on the Isle of Wight—and booked a holiday over the telephone. The holiday company, Mercury Holidays, advised him to take out insurance, in case he and his wife were, for some medical reason, unable to go. The people on the telephone mentioned no exclusions, and Mr. Carter took out insurance with Chase Parkinson.

Unfortunately, Mr. Carter had underestimated the stress that he had suffered during the previous months, when he acted as sole carer for his wife. As often happens in such cases, he developed an acute depressive illness, to the extent that his general practitioner said that he could not possibly travel and that he should cancel, or at least postpone, his holiday. At that point, the insurance company was informed and, to his surprise, Mr. Carter received, along with his insurance policy, a letter from Chase Parkinson telling him that he was not covered, because the exclusions contained in the document included all forms of mental illness.

Clearly, that upset Mr. Carter. He examined the policy, but, because it was in such small print, he was unable to read it until he got hold of a magnifying glass. He was then able to pick out some of the issues. He came to see me about the problem because he was very disappointed and felt that something had to be done.

We identified three issues. First, Mr. Carter was not, at the time of taking out the policy, given detailed information about exclusion clauses. The Association of British Insurers produces a document, "Travel Insurance: Important Notice", which is set in the sort of print that I can read without my glasses. It reads as follows:
Health: your policy contains restrictions regarding pre-existing medical problems concerning the health of the people travelling.
That is a reasonable exclusion. In my other job—as a general practitioner—I frequently receive requests from insurance companies to confirm that people have not suffered previously from an illness that would make their insurance invalid.

Mr. Carter received Chase Parkinson's contract of insurance with that document. I cannot read the policy, so I have had it enlarged. My hon. Friend the Member for Somerton and Frome (Mr. Heath), who is a trained oculist, tells me that the policy is set in five or six point, and that it would not generally be readable by anyone over 60 without some form of visual aid. The "General Exclusions" section states that the following claims are excluded:
Any claim (a) sustained whilst suffering from alcoholism or drug addiction; (b) attributable to the influence of alcohol or drugs not prescribed by a qualified medical practitioner.
Both provisions strike me as fair. However, it also excludes claims
(c) due to or arising out of (i) stress, anxiety or depressive conditions, suicide or attempt thereat, psychiatric illness, terminal illness, AIDS, HIV…sexually transmitted disease, any deliberate exposure to danger.
In short, that insurance policy makes value judgments on what is a worthy illness and what is not; it is grossly discriminatory. However, when I wrote to the ABI, I was told that that is not an unusual form in which to frame such insurance policies.

Mental health sometimes receives a poor press. I understand why travel insurance companies do not want to meet claims from people who suddenly decide that they do not want to fly, or whose anxiety about going on holiday makes them cancel, but that is not what we are discussing. My constituent suffered an acute depressive illness, which is as identifiable and diagnostically specific as breaking a leg. Like a broken leg, it gets better with the appropriate treatment. To exclude mental illness in such a broad form cannot be reasonable.

When I wrote to the ABI, I expected to receive an answer stating that the circumstances were surprising and unusual and that the association would speak to the member that had framed the policy; instead, the ABI letter confirmed that that was common practice. Having spoken to the research department of the Financial Research Centre, I am now aware that a significant minority of policies exclude claims for psychiatric, mental and nervous conditions. I have been told that representations have been made to the Department of Trade and Industry. I received a fax from Direct Line stating that it
has consistently lobbied the OFT, DTI and ABI on this matter and we have discussed it with the Consumers'Association who share our concerns. You may not be aware that we have also discussed the matter with one of your European colleagues, Chris Huhne MEP—
the Liberal Democrat MEP for the South East—
who then raised a question in the European Parliament.
The occurrence that we are discussing is not unusual and we cannot allow an industry as important as insurance to get away with what appears to be sloppy self-regulation.

I contacted the insurance ombudsman, who was not prepared to examine the general issues raised in my letter, but offered to take up the case of my constituent in the event of his appeal to Chase Parkinson not succeeding. I am glad to say that as a result of our representations, the insurance company paid out—albeit as an exceptional measure. I am even more pleased that Mr Carter made a generous and substantial contribution from the repayment to the Isle of Wight hospice.

I am grateful for this debate, because I want the Government to address three issues. First, information should be made available at the time of a contract being issued; that will become more important with the increase in the number of people who use electronic means to book holidays and buy holiday insurance. Secondly, when information is given, it must be given in a readable form: five or six point is not acceptable; at least 10 or 12 point is necessary for text to be comfortably readable. Explanatory notes that inform people of exclusions do not reflect the policy if they are set in microdot format—that cannot be right.

The last issue that I would like the Minister to address is whether insurance policies should pass a test of reasonableness. It is totally unacceptable for people to be excluded from holiday insurance, for example, if they are faced with a diagnosis not previously made of HIV-AIDS or a sexually transmitted disease. Why should they be treated differently? I do not believe that people set out to behave irresponsibly and contract a social disease in order to cancel their holiday. This is an unreasonable exclusion on behalf of the insurance companies.

Similarly, it is mind boggling that insurers should exclude all forms of mental illness. I can appreciate that insurance companies might not cover people who merely feel distressed. However, they are entitled, under the terms of the contract, to seek a medical opinion on an insured person's claim for cancellation of a holiday, and most of us in the medical profession can differentiate between someone who is a bit anxious and someone who is disabled by mental illness. The contract that was offered to my constituent was not reasonable. It should, therefore, fall foul of consumer protection legislation.

12.41 pm

I congratulate the hon. Member for Isle of Wight (Dr. Brand) on raising the issue of holiday insurance on behalf of his constituent, Mr. Carter. He explained the matter well, and it is an important subject. The hon. Gentleman is right to highlight the apparent anomalies in the ways in which insurance companies determine what is insurable—not least the way in which they differentiate between one illness and another, the hon. Gentleman's description of which I found extraordinary.

I recall applying for an insurance policy and an agent coming round. He had a huge list—as there always is—of boxes to tick. He checked a list of things that I did not do: he asked, "Do you go sky diving?" to which I replied, "No." He asked, "Are you a paraglider?" and I said, "No." He then asked me whether I was a mountaineer, to which I replied, "Yes." I knew that, as he looked at me, he could see his commission falling away like an avalanche down a mountain. He asked, "How big are these mountains?" and I told him that they were the Alps. "So they're not as big as Mount Everest?" he asked. I said, "No, they're not." "That's all right then," he replied and he ticked the box. The process is, at best, haphazard; at worst, it stacks the odds against the person trying to obtain insurance.

The Department of Trade and Industry takes a great deal of interest in the matter. I was a little perplexed when the hon. Gentleman quoted an agency or a gentleman—I am not sure which—on the subject of lobbying the DTI on this issue. I have checked with sources who inform me that we have not, to our knowledge, been lobbied on this issue. That might be because insurance matters were transferred to the Treasury in 1998. However, we still lead on policy on unfair contract terms in circumstances such as those the hon. Gentleman describes, and I shall come to such matters shortly. The Office of Fair Trading enforces fair contract terms generally.

Holidays, especially for a whole family, are one of the most expensive items that we buy. The hon. Member for Isle of Wight did not mention that, but then, he had enough to go on with. When booking a holiday, consumers should feel confident that they are adequately protected. That is all the more important, given that a mind-boggling 28 million holiday packages are sold in this country every year.

With so many of our citizens taking holidays, it is vital that they should have access to adequate insurance cover against accidents, sudden illness, loss of personal possessions while travelling and enforced cancellation because of their own or a relative's illness. My advice to those considering going on holiday is that, if they do not already have a comprehensive insurance policy, they should take one out before they leave. Even then, as the hon. Member for Isle of Wight has warned, policies can sometimes be useless because of the small print.

One must also be sure that one is buying the right insurance. Mr. Carter believed that he was buying the right insurance, but it turned out that he was not. One wonders why it is not easier to make the right choice. The consumer White Paper we published last year stressed the importance of information, which gives consumers more choices and so drives up standards. I am sure that the case put by the hon. Gentleman will help that cause.

Clearly it is not the Government's job to tell industry what to offer consumers: that will come from consumer demand and competition. Industry must answer to consumers, not to the Government. The legislation that covers insurance providers—the Insurance Companies Act 1982—does not extend to the regulation of terms, conditions or prices in insurance policies, which define the type of insurance product that is being made available. Such decisions are best left to the market. However, insurers are expected to base their risk assessment of a client on information on which it is reasonable to rely. In that way they will not fall foul of legislation designed to prevent unfair discrimination.

There is keen competition in the insurance sector: if the policy that someone wants cannot be obtained from one source, it can be obtained from another. Too many consumers assume that they must buy the policy offered to them by the travel agent or the company selling the holiday. They should realise that they have the right to shop around. It is the Government's job to ensure that there is adequate protection for consumers and that companies trade fairly with consumers and with each other. That includes protecting consumers from being misled about the products that they are buying and from unfair competition. It may help if I say a little about the measures that exist to protect consumers purchasing holiday insurance.

The Package Travel, Package Holidays and Package Tours Regulations 1992 require anyone selling a package—defined as a prearranged combination of any two of the elements of transport, accommodation or other significant tourist services—to provide certain minimum information, including information about insurance. They also give consumers rights to compensation for misdescription of any part of the overall package, which could include misdescription of the scope of an insurance policy sold as part of it.

There is legislation that specifically governs insurance, but it is more concerned with the fitness and solvency of insurance companies than with the nature of their products. It does not tackle as precisely as the hon. Gentleman would like the problem that he has highlighted. However, that does not mean that insurers are not answerable for mis-selling general insurance policies. Indeed, 96 per cent. of the insurance market is accounted for by members of the Association of British Insurers, to which the hon. Gentleman referred, and ABI members operate a code of practice on general insurance; therefore, there is non-statutory regulation. The code applies to member companies and to those who sell their products. It gives the customer the right to see both the policy document and a copy of the schedule, and requires key features of a policy to be explained. In short, important information must be given up front.

The case made by the hon. Member for Isle of Wight this morning should be thrown down as a challenge to the insurance companies. The most relevant points in a policy such as Mr. Carter's should be stated up front, so that people can see them clearly. They should not be hidden somewhere in the microdot format paragraphs at the back of the insurance policy.

The insurance ombudsman adjudicates on complaints and examines each case individually. He requires evidence that important information was made available to the consumer when the policy was sold. However, the regulation of most general insurance intermediaries is expected to pass to the General Insurance Standards Council later this year. The GISC will have a wide-ranging remit, covering the activities of insurers, advisers, agents and brokers. In due course, a GISC code will replace the ABI code. I understand that the GISC is already talking to the Association of British Travel Agents about how travel agents who sell insurance will be brought within the council's scope.

I appreciate the difficulty of understanding exclusions that are buried in a body of small print, especially when that print is very small indeed and the customer's sight is no longer perfect, which is the case with most elderly people. I was interested in the hon. Gentleman's remark about sight deteriorating after the age of 60; I fear that mine started to deteriorate much earlier than that. Although many insurance companies aim for a plain English standard, insurance documents are inevitably complex, and to provide consumers with full information about important matters that affect the scope of a policy it is necessary to state many terms and conditions. In addition, a provision that is important to one customer may be relatively unimportant to another. Many insurance companies provide back-up through telephone helplines that offer customers advice, including advice on terms and conditions of insurance cover.

I agree with what the hon. Gentleman said about print that is too small for most people to read and about the way in which some documents are written, which adds another layer of denseness to the text. It is very difficult to get into a text of that sort, but it becomes almost impossible when it is couched in language that might as well be Mongolian as far as most people are concerned. It is very difficult for elderly customers to get into that.

The hon. Gentleman spoke about "named illnesses". Insurers design products against a background of previous claims and ask themselves whether there will be a greater number of claims from sufferers of a particular illness. If so, the insurer has every right to exclude it.

Is it reasonable to exclude influenza, because there is a lot of it about? My concern is that, although the "Travel Insurance: Important Notice" document issued by the Association of British Insurers talks quite sensibly about pre-existing medical problems, the schedule to the insurance policy introduces a host of other conditions that do not have to exist previously to be excluded from the insurance. That is misleading.

The hon. Gentleman raises an important issue. I was taken by his description of some illnesses as worthy and others as unworthy, as if people go out on purpose to catch an unworthy illnesses. Life is not like that. Clearly, insurance companies have to make money; that is what they are there for—

Yes, they have to make money decently. Most insurance companies would probably endorse that statement. However, there is a legitimate question to be asked about why some illnesses are on the worthy list and others are on the unworthy list. If statistics are to be believed and the incidence of mental illnesses and the number of people associated with those who suffer from mental conditions are as high as companies suggest, one wonders how people—especially Members of Parliament—manage to obtain decent holiday insurance cover.

Extra premiums are requested for certain conditions. As a mountaineer, I pay through the nose for insurance cover when, once a year, I manage to escape to the mountains. That rankles, but I can understand it. However, it strikes me as extremely strange that an actuary sits down and decides that influenza is a more worthy illness than HIV, even though there is a far greater chance of influenza preventing someone from going on holiday, especially a weekend break. It poses all sorts of ethical questions, as well questions of medical definition.

In the short time left, I should like to deal with unfair contract terms. Regulations on unfair terms in consumer contracts give legal backing to those principles. They apply to contractual terms that have not been individually negotiated, such as terms in standard form contracts. The regulations state that a term is unfair if it creates a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer. In other words, is the term one-sided in favour of the business and against the consumer?

The hon. Member for Isle of Wight has reminded us this morning of the broad definition of an unfair contract. If a germane part of the contract is so deep in the microprint that it can affect the holiday of someone such as Mr. Carter, one must ask whether there should not be more transparency, so that the contract is fairer for the consumer.