ABTA has voiced "disappointment" that travel agents and tour operators will lose their exemption from Financial Services Authority regulation for the sale of travel insurance.

The decision by the Treasury may cause many members to stop selling travel insurance, which will lead to less consumer choice and to an increase in the number of holidaymakers travelling uninsured, ABTA warned.

The association said it believed there was no credible evidence of consumer detriment in this area.

The current exemption will continue to run until January 1, 2009 and applications to register with the FSA will be accepted from November 2008. A consultation process has also been announced.

The Treasury said this change would be implemented in "principles-based and proportionate way, minimising the burden on those travel firms that do not become FSA authorised".

Travel companies that do not seek FSA authorisation will be able to sell travel insurance through an appointed representative - so the travel firm will be able to make sales on behalf of an FSA-regulated company, according to the Treasury.

"There are additional options available to travel firms that may allow them to provide information on insurance for renumeration and, as part of our consultation, we are seeking views on whether these freedoms offer travel firms a vaibale alternative to continue offering insurance services to their customers," a Treasury statement said.

Economic secretary to the Treasury Ed Balls, annoncing that the FSA will regulate all travel insurance sales, said: "Evidence shows that companies regulated by the FSA are better at getting consumers to make an informed choice because they are better at explaining the key features and exclusions of the product and guiding the customer through the sales process.

"I have therefore decided to make all travel insurance policies sold in the UK to be done by FSA regulated companies. This will come into effect from January 2009, following a further period of consultation.

"Consumers in the future buying travel insurance sold alongside their holiday will get the same core regulatory protection and rights as consumers buying stand-alone travel insurance do now."

ABTA said it will continue to work closely with the Treasury to ensure that any regulation is proportionate to the potential risk for consumers and that the mechanics of the new regime will allow as many of its members as possible to continue providing this valued and important service.

ABTA welcomed the decision to introduce a consultation process and will be submitting its views on the best way to move forward.

Chief executive Mark Tanzer said: "I am very disappointed that the Treasury has chosen to take this step which could lead to an increase in the number of UK holidaymakers travelling without insurance.

"However, we will work closely with the Treasury to ensure that this new regime will minimise any negative impact and look to ways to allow the majority of our members to continue to offer this essential service."

Direct travel insurance firm InsureandGo welcomed the decision, claiming that travel agents who sell travel insurance have got away with no regulation for far too long.

Spokesman Perry Wilson said:  "If travel agents have nothing to hide, they should not fear being regulated by the FSA."

He added: "This is great news for customers. Various reviews, including one by the House of Commons Treasury Committee, have uncovered that consumers are regularly being mis-sold travel insurance products by travel agents.

"As a company already regulated by the FSA, InsureandGo appreciates the benefits that come from this framework. Our staff have to be constantly assessed and are examined against the Treating Customers Fairly guidelines. Other insurers are assessed likewise.

"The Treasury Committee's report made an irresistible case for such regulation. We applaud the Government for implementing its recommendations and for helping to reassure Britain's millions of holidaymakers that they are being sold travel insurance fairly and honestly.

by Phil Davies