Don't be a downhill fool

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When was the last time you bought ski insurance? The chances are that it was before 1 April. In which case you could be in for a shock when you see this season's premiums, writes Stephen Wood

On April Fool's Day this year - a curiously appropriate date - the tax on most travel insurance increased by 15 per cent. At the same time new EU regulations gave UK skiers the right to go to the front of all ski-lift queues.

OK, I was lying about that last bit. But we all know - the statistics prove it - that nobody is interested in travel insurance; so I had to do something to keep your attention. Now that I have it, I promise that if you get to the end of this article you will have read a bizarre story, and learned how to save yourself at least a few pounds on this season's skiing.

When Insurance Premium Tax (IPT) went up in April, the basic rate increased from 2.5 to 4 per cent. But for some classes of insurance, including travel insurance sold by travel agents and tour operators, the tax leapt up to 17.5 per cent.

Why was this? In the insurance trade, they offer a remarkable explanation. In recent years, it has been a common practice for travel agents to offer discounts on skiing and other holidays; but to qualify for the discount, the customer also has to buy insurance from the travel agent. The agent loses some of the profit on the holiday in order to make a profit on the insurance - where the normal retail margin is 35 per cent. This technique echoes a similar one in electrical goods retailing, where discounts are linked to extended-warranty insurance.

The Government did not like what the electrical goods retailers were doing, because while electrical goods are subject to VAT, insurance is not. So to make sure it didn't lose out, it increased the IPT on extended warranties for domestic appliances to 17.5 per cent - exactly the rate of VAT. At the same time, and - say the insurers - for the same reason, IPT on insurance sold by tour operators and travel agents was also increased to 17.5 per cent. The flaw with this reasoning? There is no VAT on holidays.

Whether the insurance trade's cock-up theory - that the government wrongly believed holidays were subject to VAT - is correct or not, the effect has been to make insurance potentially an even more expensive part of skiing holidays: a skier over 65 years old can buy a one-week package in North America for pounds 360, but the insurance policy in this year's brochures would add pounds l12 to that. With a 15 per cent hike in agents' and operators' IPT (from 2.5 per cent, before April 1, to 17.5 per cent), skiers have no choice but to buy their insurance elsewhere, from brokers and banks.

That should be true; but it isn't. According to Sarah Joannides of Home and Overseas, which provides insurance for many trade clients (including Thomson's ski programme), its sales of policies through tour operators and travel agents have increased by 10 per cent this year. These are early days, of course, in the ski booking season; but Joannides says that when it comes to buying travel insurance people don't behave rationally because "they just don't want to think about it". They linger on the pleasurable part of choosing the holiday, she says, and then opt for convenience when it comes to insurance.

Michael Pettifer, the ski insurance expert at Hamilton Barr brokers, believes that "the travel insurance market is split into three parts. About 70 per cent of customers buy from a travel agent or tour operator, and 10-15 per cent don't buy insurance at all - they choose not to, forget, or mistakenly believe that they are adequately covered by a credit card or the E111 reciprocal medical-care arrangement for the EU. And that leaves only 15 per cent or so with banks, building societies and insurance brokers."

This year, that l5 per cent of customers stand to save up to pounds 10 on their ski insurance. Among the big six tour operators, the brochure price for a week's insurance at a European ski resort averages pounds 41, and most travel agents - not all, because the tax increase has led some to cut their commission - are charging a similar premium. Thanks to IPT, the differential between brochure rates and those a broker will charge has shot up: buy a policy through the insurance trade rather than the travel trade and it can cost as little as pounds 31.

This puts a broker such as Hamilton Barr in a curious position. It will insure 100,000 skiers this season, about 20 per cent of the whole UK market; and since most of its policies are sold by travel agents the prices include the 17.5 per cent IPT which the agent has to pay. But you can get exactly the same policies at a lower price (starting from pounds 31 instead of pounds 35.40) if you buy through a broker, or direct from Hamilton Bar. It is, as Michael Pettifer, of Hamilton Barr, admits, "completely crazy".

It is always worth phoning around to get a keen price on ski insurance. And the more you do it, the more you realise how true that is - particularly for skiers more than 65 years old. For people of that age, the Thomson insurance policy for North America doubles: for a week's skiing, you would pay pounds l12. But Hamilton Barr's prices double only at the age of 70: its top "Excel" policy still costs pounds 57.20 for those in the 65-70 age group, even if they buy through a travel agent and pay 17.5 per cent tax. That's already a saving of almost pounds 55. How much would it cost to buy direct? It's worth a few phone calls to find out.

Hamilton Barr is at Bridge Street, Godalming, Surrey GU7 1HZ (01483 426600).

For more on sports and travel insurance, see page 7 of Your Money