If you sell package holidays or linked travel arrangements in the UK, you are legally required to protect your customers' money against insolvency. The Package Travel and Linked Travel Arrangements Regulations 2018 (PTRs) require every travel organiser to have financial protection in place. However, it's important to note that the government plans to eliminate ‘Type B’ linked travel arrangements where a trader facilitates the booking of a second service from another trader within 24 hours.
When you're managing customer funds and handling supplier contracts, one unexpected disruption can threaten your ability to deliver services, meet compliance requirements or maintain the customer trust your business is built on. Getting financial protection right keeps you compliant, strengthens relationships with merchant acquirers and gives you the stability you need to grow.
In this article, we explore the financial protection section of the Package Travel Regulations and outline the key types of financial protection needed to ensure full compliance.
If your business becomes insolvent before a customer travels, the PTRs require that the customer be refunded or, if they're already travelling, repatriated. As the travel organiser, you are also liable for the performance of every travel service in the package, even where those services are delivered by third-party suppliers. This means that if the supplier fails, the obligation to rectify the situation falls to you.
To meet these obligations, you need one or more approved forms of financial protection in place before you begin selling your services. For example, if your package includes flights, you need an Air Travel Organisers' License (ATOL) from the Civil Aviation Authority. For non-flight packages, the PTRs provide three possible financial protection options:
Some of these methods can be combined under Regulation 24 of the PTRs, such as using a trust account alongside insurance. The insolvency protection in place must satisfy the following conditions:
There are several approved methods available, each suited to different travel business models. Many travel businesses use a combination of the following to ensure full compliance.
A travel bond is a financial guarantee provided by a third party that protects customers' money in the event of a travel company's insolvency. Travel bonds provide a safety net for consumers by ensuring they receive a full refund, repatriation if they're already on holiday, or a continuation of their trip with an alternative provider.
Travel bonds are one form of financial protection that travel providers use to meet legal obligations set out by the PTRs. Any travel company selling package holidays or linked arrangements must have financial protection in place in case of insolvency:
"The organiser must ensure that a bond is entered into by an authorised institution, under which the institution, in the event of the organiser's insolvency, agrees to pay to an approved body."
There are two primary bond types:
Find out more about this financial protection method by reading our complete guide to travel bonds.
A trust account is a separate bank account managed by an independent trustee, used by travel companies to hold customer funds until service delivery. Trust accounts are a secure and reliable form of financial protection because the customer's funds are ring-fenced away from the company's working capital. However, this means you don't have access to the funds until the customer has travelled, restricting cash flow.
Under the PTRs, as the travel organiser, you can take out one or more insurance policies that name the travellers as the insured persons, entitling them to payment directly from the insurer in the event you become insolvent.
If your business becomes insolvent, financial failure insurance (FFI) steps in to reimburse your customers for services they've paid for but have not yet received.
FFI offers travel businesses a unique advantage in its underwriting process. A bond typically pays out the full value in the event of a failure, while FFI allows for a much more nuanced assessment. Insurers get a deeper understanding of a travel business's specific situation, allowing them to identify and account for positive factors in the company's operations.
This visibility into the business's workings enables underwriting that reflects its strengths, which may be advantageous to the travel company in terms of the insurer's appetite and the price it offers. While the coverage size for consumers remains the same, the more tailored approach of FFI can bring various benefits to travel businesses.
Find out more about this financial protection method by reading our article exploring what financial failure insurance is and why your travel business needs it.
Supplier failure insurance (SFI) shields your business from the financial impact of a third-party supplier's insolvency.
When a supplier can't deliver services due to insolvency, SFI covers the cost of refunding or rebooking customers. This ensures the financial burden of a third-party collapse doesn't jeopardise your cash flow.
Under the PTRs, the organiser is liable to refund, rebook or repatriate customers if a component fails. It's important to note that SFI isn't a substitute for the regulatory requirement, but a commercial policy designed to bridge the gap and protect your balance sheet while you fulfil your legal obligations.
Find out more about this financial protection method by reading our article exploring what supplier failure insurance is and how it works.
Scheduled airline failure insurance (SAFI) protects your business against the financial fallout when an airline becomes insolvent, and you're left to fulfil customer bookings.
SAFI covers the financial loss resulting from an airline going out of business, including:
Any business that acts as an intermediary in the sale of flights faces significant commercial exposure when an airline collapses, as the liability falls on you. SAFI doesn't satisfy your obligations under the PTRs on its own, but acts as a vital commercial risk management tool to cover the costs you incur while meeting your legal responsibilities to your customers.
Find out more about this financial protection method by reading our article exploring what scheduled airline failure insurance is and how it works.
Pipeline funds insurance safeguards your travel business's revenue in the event that an intermediary in the payment chain fails.
It protects the payment an operator or supplier expects to receive from someone earlier in the value chain, which does not reach them because the intermediary has ceased trading. This type of insurance addresses a major vulnerability in the travel industry—the risk that an intermediary takes payment from a customer and then fails before passing those funds to you.
This delay exposes your business to the risk of financial loss, as you'll still be obligated to provide the service. While pipeline funds insurance doesn't meet your regulatory requirements under the PTRs, it is a commercially vital policy. It protects your balance sheet and reputation from the financial strain of intermediary insolvency, ensuring you have the liquidity required to meet your legal commitments.
Find out more about this financial protection method by reading our article exploring what pipeline funds insurance is and why your travel business needs it.
TMU Management delivers specialist insurance solutions tailored to travel businesses operating under the Package Travel Regulations. From FFI and SFI to SAFI, pipeline funds protection and bonding, every policy is built around your business model, risk exposure and regulatory obligations. Regardless of how your business sells travel services, the end goal is always the same: we work closely with you to protect your customers and cash flow, strengthen your compliance and give you the confidence to grow.
Think of us as both your insurance partner and strategic advisor. We're here to ensure you have the right structures in place to protect your business, your customers and your stakeholders.
Not sure where to start? Our team can walk you through options to help you find the right financial protection for your business. Get in touch today to find tailored solutions that work for you.
If you need insurance that reflects how your business really works, TMU Management is here to help. Our team will assess your challenges, understand your exposures and design a bespoke solution that fits your strategy.
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