On a wing and a prayer

Intense competition in the market for travel insurance has created gaping holes in coverage.

IIt seems that everyone wants to sell us travel cover these days. While holiday companies continue to slug it out with the big insurers, new players such as Boots and Tesco have slipped in under the ropes. Furthermore, some bright direct upstarts have dazzled the market with their nifty footwork, which has pushed prices down to a six-year nadir. But cheap is not always cheerful when disaster strikes.

Direct Travel partner Mark Shaw explains: "At the moment, companies are either competing on price or on quality. They are pushing prices as far down as they can go, but the very cheapest policies will have more restrictive cover."

Many people take the simplest route to insurance by opting for the cover sold by their travel agents. But this can be a big mistake because it is usually more expensive.

From last November travel agents have been banned from selling discounted holidays only to customers who take out the insurance after an investigation by the chief consumer watchdog, the Office of Fair Trading. Profit margins on many package trips are so tight, that agents and tour operators had come to rely on the commission from insurance to bump up their take. However, the OFT launched a subsequent investigation in March after it emerged that travel agents were still operating some dubious practices to capture the insurance sale.

Other insurers, determined to break the travel companies' hold on the business, have complained that customers are still being pressurised. They say that some holidaymakers are prevented from booking until they have supplied a copy of an insurance policy which is "adequate" in the eyes of the agent.

To avoid this "Chinese burn", customers tend to book the agents' cover to avoid extra hassle or losing the holiday. Sometimes where people have booked independently, they are then told their cover is "inadequate" and still forced to buy additional cover from the agent.

Other complaints being looked at by the OFT include the automatic billing of customers for holiday insurance whether they have requested it or not.

And finally, the issue of "free insurance" is raising eyebrows. A spokesman for Direct Line said: "The question of free insurance is just how free is it, and how much the price of the holiday is inflated to include it. It is very hard to unscramble. The other big worry about free insurance, is just how good is the cover. Sometimes there are so many exclusions on these policies, that when disaster strikes, the cover just isn't there."

The quality of the cover is the big concern with the plethora of contracts available. Cheap contracts may have more exclusions, more excesses, and take a much harder line over pre-existing medical conditions, than a more expensive option.

When going on a beach holiday, for example, watch out for exclusions over dangerous or hazardous sports. This will include things such as windsurfing and motorboarding. If you have an accident and injure yourself or someone else, you're on your own. Similarly, study the exclusions carefully. Some contracts will have a pounds 50 exclusion per claim, which means that you have to meet this loss yourself. Increasingly, the cheaper policies have pounds 50 excesses per category of items insured. So if you have a bag worth pounds 45 snatched, containing pounds 60 cash and rail tickets worth pounds 90, instead of getting pounds 145 back you'll be lucky to get pounds 50. This is because the bag might be covered with an excess under the personal belongings section, the cash under money and the tickets under travel.

But the most worrying trend is the increasingly draconian implementation of the pre-existing medical conditions clause. If you have ever suffered from a bad back, and find yourself laid out flat in a Spanish hospital, the chances are your insurer will not meet the bill. Be scrupulous about declaring any previous medical history.

One of the best ways to keep the cost of insurance down is to take out annual travel cover. Not only will this almost certainly be cheaper than buying several policies if you travel abroad more than once a year, but it can protect the whole family whenever they venture overseas. This can be particularly valuable if you have several children travelling on different school-trips.

The most comprehensive cover will extend throughout the world and include winter sports and other hazardous sports activities. However, you can limit the price by simply excluding irrelevant locations and sports activities. So, bon voyage, break a leg - but don't take me literally; you may not be covered.