Direct Line extends cheap travel cover

Direct Line is expected to introduce travel insurance policies this autumn that undercut those on offer from high-street travel agents by up to two thirds.

The policies are currently on offer only to holders of Direct Line motor insurance policies, but they are expected to be rolled out as soon as the company, a subsidiary of the Royal Bank of Scotland, has hired enough telesales staff to cope with the demand.

In a letter sent out to motor insurance policyholders headed "Would you like pounds 100 more spending money for your holidays?" Direct Line compares its price for insuring a family of five for two weeks in Spain with that of travel agents Thomas Cook, Going Places and Lunn Poly. The travel agents' prices range from pounds 151 to pounds 165; Direct Line is offering a similar policy for pounds 50.

Even at that level, Direct Line is making money from the policy, which costs around pounds 35 to buy on the insurance market, according to sources within the insurance industry. "They're probably still making more from that than they are from their motor insurance," said one broker.

At the moment, travel agents' insurance policies are sold as part of discounted package holidays, and customers are obliged to buy them to qualify for the package holiday discount. According to insurance brokers, the profit to the travel agent of selling this insurance can be greater than the profit on the holiday itself.

However, the Office of Fair Trading is expected to announce shortly that travel agents will not be permitted to sell holidays where the discount is linked to the purchase of travel insurance. With such a ruling and the increased competition in the market, travel agents will be hard pressed to maintain their margins.