Supplier Failure Insurance (SFI): Essential Cover for Tour Operators and Travel Agents

Each of these three types of insurance serves a distinct purpose in your risk management strategy. The summaries below provide a quick reference guide to distinguish between these three types of cover:

Supplier Failure Insurance (SFI)

• What It Protects: The insolvency of your suppliers (hotels, car hire, etc).
• Who It Reimburses: Your business (to cover rebooking/refunds).
• Why Tour Operators and Travel Agencies Need It: Protects your cash flow and PTR liability.

Financial Failure Insurance (FFI)

• What It Protects: The insolvency of your own business.
• Who It Reimburses: Your customers.
• Why Tour Operators and Travel Agencies Need It: A regulatory requirement that increases consumer trust.

Scheduled Airline Failure Insurance (SAFI)

• What It Protects: The failure of a scheduled airline.
• Who It Reimburses: Your business or the customer.
• Why Tour Operators and Travel Agencies Need It: Protect against the financial collapse of airlines.

Supplier Failure Insurance is an essential safety net for travel businesses relying on external suppliers to deliver services. Here are the main benefits of integrating SFI into your risk management strategy:

Package travel regulation compliance

Under the Package Travel Regulations, ‘travel organisers’ are responsible for every component of a holiday, regardless of whether they or third-party suppliers were meant to perform them. Travel agent and tour operator Supplier Failure Insurance helps you meet these obligations by protecting customer funds and ensuring that, if a supplier fails, the financial burden doesn't harm your business.

Supply chain stability

The travel industry ecosystem is a complex web of dependencies. You rely on your suppliers to conduct the services you agreed to, and when insolvency stops them from doing so, SFI steps in. It minimises the ripple effect of a supplier's collapse by providing the liquidity needed to source from alternative suppliers immediately, keeping the supply chain intact.

Customer confidence

Travellers are aware of their rights, making robust financial protection a major selling point. SFI gives your customers peace of mind that their holiday will continue or their money returned, even if a supplier fails.

Financial resilience

A single supplier failure can cause a sudden, significant drain on your cash flow and require you to quickly refund or rebook your customers' travel plans. SFI protects your working capital, absorbing these unexpected costs and ensuring a third-party failure doesn't harm your business's finances.

Travel industry expertise

Navigating the many nuances of the travel sector requires much more than general insurance knowledge. A specialist travel industry SFI provider understands the risks inherent in operating a travel business today. No two travel businesses are the same, but a specialist provider knows how businesses like yours generally operate, ensuring you’re not over- or under-insured, but have just the right amount of cover.

Selecting the right Supplier Failure Insurance policy requires you to ask the right questions. To help you vet potential providers and uncover any gaps in coverage that could be a problem later, we recommend asking the following questions as a starting point:

• What is the scope of the coverage? Does the SFI policy include all necessary travel components, such as hotels, car hire, rail and excursion providers? Do I need a separate policy for airlines?
• What are the coverage limits? Is there a maximum policy payout per passenger or an aggregate limit per policy year?
• Is there an approved supplier list? If you work with niche or international partners, are they automatically covered under the policy, or do you need to provide a list of declared suppliers for the insurer to approve?
• Is repatriation included? If a supplier fails, will the insurer cover the logistics and costs of bringing the customer home, or will reimbursement be provided at a later date?
• Are there specific supplier types that aren't covered? For example, are there ‘high-risk’ airlines or specific geographic regions currently excluded from the SFI cover?
• What does the claims process involve? What specific documentation is required to prove supplier insolvency, and what is the typical turnaround time for an SFI payout?
• Does the travel business or the customer have to pay an excess? Is there a deductible for the travel business?
• Does the policy cover indirect losses? If a customer cancels their entire trip because one ‘essential’ part failed, are you covered for the resulting loss of the whole package?
• Does the policy cover ‘Force Majeure’ leading to insolvency? If the supplier fails due to war, a pandemic, or a volcanic ash cloud (events that may be excluded from standard policies), does the SFI policy still pay out for the insolvency?

If you need Supplier Failure Insurance that’s built around how your travel business really works, TMU Management is the partner for you.

We're not your standard SFI policy provider – our policies are designed specifically for your business model and supply chain dependencies. We work closely with you to explore your supplier network, assess your risk exposure, and design a bespoke solution that truly safeguards your customers and your operations from the damaging effects of supplier failure.

Don't leave your travel supply chain to chance. Contact our team today and join the tour operators and travel agents who trust TMU Management to support them when a supplier unexpectedly fails.