A breath of fresh air as agents feel the pressure

With a new high rate of insurance premium tax, the competition is closing in on policies sold by travel firms and electrical retailers

Direct Line, the car insurance giant, is looking to take advantage of the increasingly poor value offered by many travel policies sold through agents with the launch of its own range of travel policies. But buyers should shop around; in many cases, Direct Line does not look best value.

Since this month, policies sold through travel agents have borne an increased insurance premium tax of 17.5 per cent, compared with 4 per cent for policies bought direct from insurers or through brokers.

The tax change is expected to underline the better value that can be obtained from an insurer rather than an agent. Many policies sold through travel agents were already expensive and poor value, and a lot of the biggest companies, including Thomas Cook and Going Places, are passing on the tax increase.

This means, for example, that Going Places now charges pounds 37.75 to insure one adult going to Europe for two weeks, against as little as pounds 13 quoted for "best buy" policies in a survey in last month's Holiday Which?

Direct Line is the latest insurer to look to undercut the travel agents and is offering policies for single holidays as well as those covering a number of trips in any one year.

The market for annual policies is now particularly competitive. Recently, the Bradford & Bingley building society launched a policy offering excellent value at pounds 70 for an individual covered for any number of trips in a year anywhere in the world lasting up to 90 days each. Importantly, it also carries no excess; with most policies you are liable for the first pounds 30 or so of any claim and with Direct Line the excess is pounds 50.

Direct Line quotes pounds 17 for an individual going on holiday to Europe for two weeks, and pounds 84 for an annual policy covering any number of trips anywhere. Jonathan Biles, chief executive of WorldCover Direct, another insurer, describes Direct Line's travel policies as "quite expensive for what they are". Direct Line, however, claims its policies can still work out as much as 50 per cent cheaper than those bought through agents.

But exploiting this competition may not be easy because it is often a condition of a particular holiday deal that you buy the insurance through the agent. The Monopolies and Mergers Commission is currently investigating this conditional selling, and is expected to ban it. But in the meantime holidaymakers may have to take out what seems like poor-value insurance, even if they have their own, or lose a holiday discount.

And in at least one case - summer holidays from Lunn Poly - they might be given free cover but have to pay full price for their holiday, again regardless of whether they have their own insurance.