Sami Doyle, CEO and Founder of TMU Management, explores why price-based underwriting is leading to poor outcomes for travel merchants and underwriters.
Every UK business that sells regulated travel has to hold financial protection. The Package Travel Regulations and the ATOL scheme make it unavoidable: if you sell holidays, you must be able to refund and repatriate your customers if your business, or a supplier you depend on, becomes insolvent.
You might expect a market built on guaranteed demand to be one of the steadiest in insurance. In practice, it's actually one of the most volatile because capacity arrives late, leaves early and is priced largely on gut feel. The reason comes down to how travel risk is bought and sold. Too often, it is underwritten on price, and price tells you very little about a sector this exposed to insolvency.
There is a wide gap between how certain the demand for travel financial protection is and how improvised its supply has become. Operators must have cover, yet the people pricing that cover are usually working from gut feel rather than hard data.
The problem is that most insurers don't fully understand the travel sector. They are applying a financial lines approach to an industry with its own seasonality and modes of failure. Without real sector knowledge, pricing gets anchored to whatever signals are closest to hand: how well a broker argues the case, the last loss the underwriter happened to take, and a quick read of the balance sheet. None of that tells you whether a tour operator will still be trading in 12 months.
The capacity this produces is unpredictable. It enters the market once a competitor has already taken the easy premium, then pulls back at the first sign of trouble. For the people putting up the capital behind it, the pattern should be a warning that the risk is being priced without any reliable way to measure it.
The much deeper issue is that no one in the market can see the whole picture. There is no industry-wide dataset on losses for travel business insolvencies. Every carrier prices in isolation, with no consolidated view of how failures cluster or how financial distress spreads through the supply chain. Each underwriter sees only their own book, which is far too small a sample to learn anything reliable from.
This is an issue because travel failures don't happen suddenly – problems build behind the scenes well before the company finally collapses. The information is out there, but it's scattered. This means carriers keep pricing the same kinds of risk without ever seeing what connects them.
For the underwriters bearing the risk, the economics have become unsustainable. The strain generally shows up in two places:
Layers of intermediation add little to the underwriting itself. They compete on price and chip away at margin at every renewal, taking a cut for moving the risk rather than for understanding it. Each cycle pushes the price down again without improving the decision behind it.
That leaves the underwriters to work on single-digit margins, often below 10%, which can't absorb a normal amount of losses, let alone a sector-wide shock. This is exactly why capacity disappears so quickly when conditions turn.
There is also no room for data-led upsell. On the face of it, this only sounds like a priority for insurers, but that's not the case. Chargeback exposure, supply chain cover and pipeline funds protection are very real risks that operators would pay underwriters to carefully manage, but a model built around the cheapest headline premium never gets close to them, leaving them exposed.
The same weaknesses that reduce income also make losses more painful. First comes adverse selection. Because the cheapest quote tends to win, carriers end up holding the risks that brokers couldn't place anywhere else.
Those risks then go unwatched. Once a policy is written, how operators' finances change throughout the year isn't monitored. This means the first warning of an insolvency is usually the claim itself, and this is long after the point where the risk could have been repriced or stepped away from.
Then there's the danger of concentration. Exposure is spread across policies sold through intermediaries, with no shared view, so it's very difficult for any one carrier to see how connected the risks are. A single event, such as a major operator failure, can impact a string of policies that looked independent but were exposed to the same underlying weakness.
As with the income side, this sounds like a problem only the underwriter carries, but the cost impacts everyone: when concentrated losses happen, underwriters leave the market, cover gets harder to find, and the operators who depend on it are left exposed.
It would be easy to assume that firmer pricing will fix the issues underwriters are facing, but experience suggests otherwise. The demand isn't going anywhere, the sector keeps facing shocks that test operator solvency and the information needed to underwrite it well already exists. It just isn't currently in a form the market can use.
What's missing is the infrastructure to turn all that scattered information into something carriers can act on: a shared view of sector loss experiences, live monitoring of the travel businesses being covered and a clear picture of exactly where exposure is building up.
Well-run travel businesses will be rewarded with better terms, weaker risks will be priced honestly and the cost of distribution that adds so little could be reduced. Underwriters would also be in a much better position to stay in the market through a hard year, because their margins would finally match the risk they hold.
No platform of this kind exists yet, which is why the market keeps cycling through the same problems over and over again. Until travel risk is underwritten on evidence rather than gut feel, last loss and the most persuasive broker, the sector will be locked into the cycle of shrinking margins and a dash for the exit whenever the pressure gets too much.
Without changing how we approach risk, the cycle is doomed to repeat itself.
TMU Management provides integrated insurance for financial institutions and risk-bearing markets. Get in touch today to find out how our embeddable business protection delivers confidence across your entire value chain.
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.
Contact usThank you for your interest in TMU Management. If you have any questions about our company or our services, please feel free to reach out via our contact form, or using the contact details below. We look forward to connecting with you soon!
