James Daley: Why your insurance cover may not be worth the paper it's printed on

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The Independent Online

An end to the days of sharp practice by ethically corrupt insurance salesmen finally moved one giant step closer yesterday, as the Financial Services Authority extended its grasp to take responsibility for regulation of the sector.

An end to the days of sharp practice by ethically corrupt insurance salesmen finally moved one giant step closer yesterday, as the Financial Services Authority extended its grasp to take responsibility for regulation of the sector.

Before Friday, people who sold the likes of car or house insurance were not regulated, and so weren't obliged to ensure the policy they were selling was suitable for their customer. Worse still, insurance salesmen were under no obligation to point out the finickety clauses in their policies, which often meant your claim would be rejected if you ever needed to make one. The final insult would come when you made a complaint, at which point the absence of FSA regulation would mean you couldn't turn to the Financial Ombudsman Service (FOS) if you felt you'd been missold a product. Fortunately, for most types of general insurance, all this has now changed for the better.

But while the FSA's move to regulate the sector is good news, two gaping holes have been left in its regulatory net, which are certain to ensure that thousands will continue to be sold redundant insurance policies every year. After a five-minute consultation 18 months ago, during which the retail and travel industries threw a tantrum about the potential cost of insurance regulation, the Treasury agreed to let these two huge parts of the insurance sector off the hook. As a result, when you buy an insurance policy from your travel agent, or an extended warranty from your local electrical retailer, you'll continue to be afforded the same poor level of consumer protection that you always were.

The transparency of the Treasury's hollow decision has been most evident in the travel sector, where it has forced the specialist travel insurers to fall in line with the regulations, but has let off the travel agents who sell insurance as a secondary item. This is total lunacy. In reality, it is the specialists who tend to be more customer-service driven and have higher standards, while the travel agencies will try to surreptitiously slip their over-priced policies into holiday packages, often failing to warn customers of the vast list of exclusions from their cover.

The story in the extended warranty sector is equally depressing, where the warranties often cost as much as the item itself. While the Competition Commission made one small step towards tackling this issue a year ago, ensuring that retailers make warranty prices clearer, the shops still have a captive audience, most of whom are unaware they could save hundreds of pounds by shopping around. Extended warranties bought through an online specialists are often a fraction of the price you will find in your local Dixons or PC World.

Understandably, the other industries that sell insurance as a secondary product, such as motor dealers, dentists and vets, feel aggrieved that the travel agents and retailers have managed to slip through the net. And while publicly, the FSA can only support the Government's decision, its management must be frustrated that its authority has been undermined by such inconsistent policy.

Although the power of the retail and travel lobby clearly packs a punch in the halls of Westminster, a properly motivated consumer lobby can beat both of them hands down. Until the Treasury concedes to level the playing field, however, consumers must continue to be super-vigilant when buying insurance.

* IT WAS heartening to hear this week that the Competition Commission plans to persist with its inquiries into the store-card industry, and has acknowledged that providers are gaining to the detriment of consumers. Despite coming under pressure over the past 18 months to reduce their extortionate rates and to make their terms and conditions clearer, few retailers have made any changes at all. A recent Which? survey revealed that credit on the high street is easy to access, and that shop staff very rarely warn shoppers about the small print. More needs to be done to ensure that shoppers know they can get much better rates of credit elsewhere. If this were common knowledge, surely people would not sign up so quickly to rates of 30 per cent a year.

Finally, financial education for the future

After seven years of dudgovernment savings initiatives, I sometimes find it hard to be positive about anything new from the Treasury. But although it has its pitfalls - and may have been driven more by the political capital it buys than the social outcome it will deliver - I can't help feeling that the child trust fund is a genuine step forward in the battle to financially educate Britain. The fact that every child born since September 2002 will grow up with a savings pot has huge potential to help future generations start understanding money at an early age.

Much has been written about Britain's savings apathy over the past few months, as evidence has shown that fewer people are taking financial responsibility for their future. A large part of this is undoubtedly down to lack of understanding, and lack of adequate financial education at a young age. The child trust fund can help to change this.

My only worry is that initial indications are that the majority of parents will put their children's money into cash savings accounts, which is almost certain to ensure their pot grows much slower than it could. Having recently made mistakes in its advice over the safety of occupational pensions, the Government is reluctant to push people towards equities. But it is encouraging that it has at least been bold enough in its CTF literature to inform parents that equities have outperformed cash during every 18-year period for the past four decades. When your CTF pack arrives next week, think long and hard about where you put your child's money.


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