My honourable friend the Economic Secretary to the Treasury (Ed Balls) has made the following Written Statement.

On implementing the EU's insurance mediation directive, the Government gave the Financial Services Authority responsibility for regulating the selling of all general insurance, save for a few exemptions allowed by the directive. Sales of travel insurance sold along with a holiday or related travel were exempt from regulation, but given concerns with this market, the Government committed to review their decision in early 2007.

In August 2006 the Treasury announced that it would conduct an investigation into the selling of travel insurance sold along with a holiday or related travel, thereby fulfilling the commitment made in 2003 to return to this area. A call for evidence was published in November 2006 to inform the review. This document set out the issues and put forward a number of options for the future regulation of the sector. The Treasury Committee also held a hearing into the scope of FSA regulation and has since produced a report calling for travel insurance sold along with a holiday to be regulated by the FSA, so long as it can be done in a proportionate way, and for the Government to work with the FSA and industry to produce policies that are better summarised in plain English. On the second of these recommendations, HM Treasury is taking forward work with the Association of British Insurers.

The Government believe that there is a clear weight of evidence pointing to a gap in consumers' understanding of travel insurance as a product and the cover it provides. In particular:

although the travel insurance market is highly competitive, polices tend to be more complicated than a simple household or motor policy;

as a secondary purchase, consumers are less likely to be focused on the details of their insurance policy than through a direct sale; and

the majority of consumers seem only really to consider price, not the details of the policy, in deciding which policy to purchase.

While all firms selling travel insurance could do more to explain to customers what the policy does and does not cover, there is clear evidence to suggest that FSA regulated firms do a better job in terms of product disclosure and navigating the consumer through the sales procedure. Furthermore, customers of FSA firms have access to statutory redress and compensation mechanisms if things go wrong. Also, from a principled viewpoint, there is no case for the distribution of travel insurance through this channel to sit outside the regulatory framework when direct sales through insurers or brokers are within it.

The Government take a risk-based approach to financial services regulation by balancing the need for proper consumer protection with the need to minimise the regulatory burden on firms. After a careful consideration of the arguments and assessment of the balance in this case, the Government believe that it is in the public interest to extend FSA regulation to cover travel insurance sold alongside a holiday. Further details of this assessment are set out in the partial regulatory impact assessment accompanying the proposal. There will now be a further period of consultation on the Government's preferred approach.

HM Treasury is responsible for the overarching regulatory framework under the Financial Services and Markets Act 2000 and the scope of activities to be regulated by the FSA. Once a decision has been made on scope, the FSA is responsible for the details of the regulatory framework that firms must operate under.

The Government are confident that the FSA operates within a framework that offers it the opportunity and flexibility to regulate in a risk-based and proportionate way. In line with better regulation principles, the Government will also look to undertake a post-implementation review after a reasonable period of time, three to four years after regulation comes into effect.

HM Treasury is today publishing the following document: Travel Insurance Review—Summary of Responses and Next Steps, copies of which are available in the Vote Office and the Libraries of the House.