When the sale of general insurance came under the supervision of the Financial Services Authority in January 2005, anyone buying cover directly from an insurer or via a broker could be confident that the sale had to comply with strict rules and regulations, and there were rights of redress if things went wrong.

However, a loophole was left in the rules: if you bought your insurance from a travel agent, as part of the travel package, the travel agent did not have the same obligations to the customer.

For example, the Select Committee found that 10 million people travelling abroad in 2006 would not have been covered for medical costs if they had been caught up in a terrorist incident.

The Committee took evidence from the consumer lobby group Which?, which suggested that only one in five travel agents explained policies to customers.

It also said almost two-thirds did not ask about medical history, even though many policies have restrictions for people with pre-existing conditions.

Representatives from the insurance industry said, however, that more regulation would force up the price of insurance, Nick Starling, director of general insurance at the Association of British Insurers, added that the risk of consumers getting a bad deal was low.

He said that the Financial Ombudsman received only 1,700 complaints last year.

The Association of British Travel Agents (ABTA) has also opposed regulation of insurance sales by travel agents, and says that, if agents stopped selling insurance as a result of new rules, this could result in more holidaymakers travelling with no insurance at all. ABTA chief executive Mark Tanzer said. “FSA regulation could only lead to more travellers being put at risk.”

While the ABI does support some kind of supervision of travel insurance sales, it is opposed to compulsory regulation, and does not think that all travel insurance should include cover against terrorist acts.

It believes consumers should be allowed to pick and choose the right policy for them, depending on where they are travelling. For instance, those on short-haul trips to Europe, where the free European Health Insurance Card grants the holder medical assistance in EU countries, may not need types of otherwise expensive insurance.

Additionally, travellers may not need baggage or personal possessions cover if they are covered on their home insurance. They may also have other insurances for personal liability and private medical care.

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