In the future, travel agents which sell holiday insurance to their customers will be regulated by the Financial Services Authority (FSA).
From 2009, the FSA will have responsibility for monitoring the sale of all travel insurance - at the moment it is only involved with the sale of stand alone policies.
However, some consumer groups - like Which? - argued that this meant that travel agencies were under no obligation to spell out the details of policies they were selling and so sometimes offered holidaymakers inappropriate options.
Announcing the change to the regulatory structure, economic secretary Ed Balls said: "Twenty million people are buying travel insurance each year, and some are putting themselves and their families at risk by buying travel insurance that may not cover their needs.
"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."
Defaqto, a leading provider of financial data, welcomed the decision. Its head of insight, Brian Brown, said that some travel agents may decide not to offer insurance in the future.
"With travel agent turnover being hit by growing sales through the internet, it may not be too surprising that some travel agents will not wish to get involved," he explained.
"They could move into other, non-regulated areas, such as airport parking and transfers."