Insurance broker Xsavi has had its permission to trade cancelled by the Financial Services Authority (FSA).
The broker, which is now insolvent, sold travel insurance to 2,000 consumers without having an underwriter in place.
As a result, consumers travelled abroad unaware that if something went wrong they could have been left in the lurch.
It is the first time the FSA has taken such dramatic action since it started regulating insurance sales in 2005.
The broker had been in negotiation with an insurer to underwrite travel insurance policies but had “jumped the gun” by allowing the sale of policies with no agreement in place, the FSA said.
The sales of policies not underwritten took place in February last year. The unlawful sales were reported to then FSA by a member of Xsavi’s management team.
On announcing the ban, the FSA said the firm had failed to conduct its business in compliance with proper standards.
“Xsavi’s behaviour in arranging contracts of insurance without underwriting being in place is not acceptable,” FSA spokesman Andrew Honey said.
“This practice poses significant risks to consumers – potentially extremely serious in relation to travel insurance – and does not meet the standards we expect,” Mr Honey added.