Why it pays to be clued up about insurance

Travel insurance has never been the most exciting product for travel agents to sell but it can be a highly profitable add-on with commission soon adding up.

Ancillaries specialist Holidays Extras estimates that a high street agency selling around 400 insurance policies a year to customers can earn up to £10,000 in commission.

What may be deterring agents from selling travel insurance is that this area of the trade has been regulated for the past eight years by the Financial Conduct Authority (FCA) – formerly known as the Financial Services Authority.

This means that travel agents have to comply with strict regulations when selling insurance to customers. The following is a guide to how agents can legally sell insurance and cash in on a potentially valuable source of commission.

What are the rules?

The FCA has been regulating the selling of travel insurance alongside a holiday or other travel arrangements by agents and tour operators – known as connected travel insurance (CTI) – since January 1, 2009.

As a result, both agents and operators either have to be authorised directly by the FCA to sell insurance or become an “appointed representative” of an authorised firm (normally an insurance company or intermediary), according to Abta, which has detailed guidance notes on the subject.

“If they are not in either of these categories, then all they are permitted to do is give general advice such as telling clients that they should take out adequate insurance cover and provide leaflets for insurance providers,” says an Abta spokesperson. “They must not go further and make recommendations about specific policies or clients’ needs.”

Louise Bates, sales and partnerships manager at Rush Insurance, adds that agents selling insurance “must ensure that they have the appropriate permissions and follow appropriate guidelines” as set down by the FCA.

This includes agents having to inform customers of the name of the insurance provider they are dealing with and how they are authorised by the FCA, plus advising them to read the policy wordings thoroughly and letting them know about the 14-day “cooling off” period following the purchase as well as complaints procedures.

What are the options for agents?

In view of these stringent regulations, what are the most popular options for agents who are currently selling insurance?

According to insurance companies, many agents choose to go down the route of becoming an appointed representative of an FCA-authorised insurance provider rather than dealing directly with the FCA on their own.

Holiday Extras, for example, has around 300 agents who are acting as its appointed representatives in the UK and this arrangement allows them to sell insurance to
their customers.

Ashley Close, head of travel insurance partnerships at Holiday Extras, says: “These are individual travel firms which are approved by the FCA to sell our insurance. With some companies, having multiple branches around the UK, this equates to roughly 700 separate outlets.”

To become an appointed representative of an insurance provider, agents must still go through an application process with the FCA, which includes at least one member of staff becoming designated as an “approved person” as well as ensuring that sales staff are “competent to sell insurance”.

For agents looking for a less onerous way to sell the product to clients, another option is simply to “introduce” or refer their customers to an insurance company. These sales can then be tracked using a dedicated web link or referral marketing code to ensure that the agent still earns commission.

Just Travel Cover, which specialises in selling travel insurance to those over 65 and clients with medical conditions, works with agents purely through this referral model.

Lesley Maxwell, business development executive at Just Travel Cover, adds: “We only work with our travel agent partners on a referral basis, with them acting as an ‘introducer appointed representative’. We are fully responsible for all aspects of the quote/sale and the travel agent simply recommends us to the client. We pay the travel agent commission in each case.”

But taking this referral route to travel insurance can obviously be less lucrative in terms of commission for agencies than selling directly to customers.

Rush Insurance’s Bates adds: “The majority of our larger travel trade partners sell travel insurance direct to the customer – rather than referral – as it provides a further opportunity to expand their relationship with their clients, providing them with a more comprehensive service and the commission levels usually far outweigh those that can be earned via a referral scheme.”

How much money can you make from insurance?

Selling travel insurance is undoubtedly a valuable extra revenue stream for agents as well as offering a more comprehensive range of services to clients.

“If a travel firm really decides to give travel insurance a high priority, the earnings can be significant. Our largest partners earn commission into the hundreds of thousands of pounds,” says Holiday Extras’ Ashley Close.

“A high street agency selling 400 policies a year could expect to earn around £10,000 in commission. This would be a mix of cashflow from policies sold in store and commission from policies sold to customers who are referred to Holiday Extras.”

Agents can also benefit from the FCA introducing stricter regulations on travellers having to declare pre-existing medical conditions, which can in effect push up the premiums for some clients and lead to higher commission for agencies.

“Selling insurance, or setting up arrangements to earn commission from referrals, is definitely something that agents should consider as not only will it provide
a much-needed service to clients, but it will open up a new regular source of income,” says Just Travel Cover’s Maxwell.

“As we specialise in cover for pre-existing health conditions, a premium could be hundreds or even thousands of pounds, and with the agent receiving generous commission levels on such cases, they can often find they make more from the insurance policy than the holiday itself.”

Insurance may not be sexy, but it can certainly help boost an agency’s bottom line once you get to grips with the regulations and requirements.