For travel businesses operating in the UK and the EU, compliance with the Package Travel Regulations is mandatory. Choosing the most suitable financial protection method requires careful consideration, as it can fundamentally alter how your company operates.

If you're wondering which insolvency protection option to choose, you're in the right place. In this article, we weigh up travel bonds vs. Financial Failure Insurance to help you decide which protection option is best suited to the realities of your business.

The Package Travel Regulations: Insolvency Protection

Before we dive into the specifics of each protection method, we need to revisit the regulations. Under the Package Travel Regulations (PTRs), a travel business selling package holidays or linked travel arrangements in the UK must provide financial security for payments made by consumers.

Regulation 19 of the PTRs explains that, as an organiser, you are legally required to secure insolvency protection that ensures all customer money is refunded and, where relevant, customers are repatriated. These arrangements must cover all reasonably foreseeable costs:

Refunds: Money the traveller paid for services not fulfilled. This must account for the full timeline of funds held, from initial deposits to final balances.
Repatriation: Estimated costs to bring travellers home in the event of insolvency while they are abroad, including any necessary accommodation costs while they wait to be brought home.

There are typically three recognised methods travel companies use to meet their obligations:

A bonding scheme
Financial failure insurance (FFI)
A trust account

The insolvency protection put in place must:

Become available as soon as the travel services aren't being performed fully, or it's clear they won’t be performed
Be free of charge to the traveller, ensuring their repatriation is funded
Be processed without delay
Must apply regardless of the traveller's place of residence, point of departure or where the package was sold

Why do some travel businesses choose bonds or insurance over trust accounts?

While trust accounts are a valid travel insolvency protection method, offering high payment security by ring-fencing customer funds until travel is completed, some companies that require access to significant working capital may find them restrictive. As a result, they may look to Financial Failure Insurance or travel bonding schemes to meet their legal obligations.

It's important to note that we are strong advocates for trust accounts and believe they are, in many cases, one of the most powerful tools available. At TMU, we often offer the option to integrate trusts directly inside our FFI packages to give policyholders the best of both worlds. This combined model offers a flexible solution that allows travel companies to use working capital and provide choice.

Financial Failure Insurance

Another insolvency protection method outlined in the PTRs is Financial Failure Insurance (FFI).

What is financial failure insurance?

Financial Failure Insurance is a consumer protection product that covers customer refunds and repatriation if the principal travel company becomes insolvent. It applies when a business ceases trading and replaces the refund and repatriation obligations that would otherwise fall on the company or its administrators. It is often used by travel organisers to provide the legally required level of customer protection under the PTRs.

Regulation 22 of the PTRs outlines that travel organisers can take out one or more insurance policies that pay travellers directly in the event of insolvency. However, the insurance must be held by a UK, Channel Islands, or Isle of Man-licensed insurer, and organisers should ensure the policies are not voided for negligence or breach of conditions.

Additionally, insurance policies can be written so that an Approved Body administers claims for the insurer and manages repatriation arrangements for affected travellers.

Who can take out Financial Failure Insurance?

FFI is suitable for a wide variety of travel companies, including:

Tour operators
Travel agencies
Online travel agencies (OTAs)
Homeworking groups
Airlines
Cruise operators
Travel technology platforms

Why do travel companies choose financial failure insurance?

Financial Failure Insurance has several benefits for travel companies:

Ensures full compliance with the PTRs
Fast to implement compared to travel bonds and trust accounts
Gives businesses continued access to working capital
Increases customer confidence
Flexible for multi-jurisdiction sales
A compliant alternative for non-ATOL packages
Ability to scale businesses while maintaining a narrative of robust financial protection

What does the FFI application process typically involve?

The FFI application process is essentially a business review. You will be required to give the FFI provider you choose a comprehensive overview of your business, as this will help them determine your specific risk profile and the appropriate premium for your cover.

The following documents/information will help the FFI provider better understand how FFI can support your travel business:

Your business's incorporation document
Shareholding documents
ID verification
Your company accounts (Annual turnover, EBITDA, debt, total expenses and assets, liabilities, shareholder/owner equity, etc.)
Supplier information
Your published terms and conditions
Customer payment terms
Agent payment terms
At least 3 months of bank statements

While this isn't the definitive list of documents and information you'll be required to provide to an FFI provider, it gives you an idea of what to expect. The specifics of the FFI application process vary by provider.

What is generally included in an FFI policy?

Insolvency of a travel organiser, airline or cruise operator
Insolvency of a key supplier, where payments have already been made
Reimbursement of consumer pre-payments and repatriation costs where required
Continuity of trading for the insured organisation

What isn't included in an FFI policy?

Fraud or wilful misconduct
Insolvency outside the scope of the policy (e.g., non-contracted suppliers)

Travel Bonds

The PTRs identify travel bonds as an acceptable form of insolvency protection.

What are travel bonds?

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 act as a safety net for consumers, 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 possible financial protection method that travel companies use to meet their legal obligations set out in the PTRs, which state: "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."

Bonds tend to have a maximum term of 18 months, and the bond sum is calculated as follows:

The bond must cover the maximum amount of customer payments you expect to hold at any one time or 25% of your total annual package turnover – whichever is smaller.
If the approved body has a reserve fund or insurance, the bond requirement reduces to 10% of the payments, or to the maximum number of payments the organiser expects to have outstanding at any one time, whichever is smaller.
For packages which may involve repatriation, the bonds must also include a reasonable sum that the organiser might be expected to cover.

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Types of travel bonds

There are two primary travel bond types: bank bonds and insurance-backed bonds:

Bank bonds are financial guarantees issued by banks on behalf of a travel company, ensuring customers are refunded should the company go insolvent.
Insurance-backed bonds are a more flexible alternative to bank bonds. After a financial review to assess the business's risk, the insurer provides the guarantee to the regulator or trade association.

Who can take out a travel bond?

Travel bonds are suitable for a wide variety of travel companies, including:

Tour operators
Travel agencies
Online travel agencies (OTAs)
Homeworking groups
Airlines
Cruise operators
Travel technology platforms

Why do travel companies choose travel bonds?

Bonding has several benefits for travel companies:

Compliance with the financial security requirements of the PTRs
Demonstrate robust financial management and reduce risk for acquirers
Many trade associations require members to hold a compliant bond
Enhances your reputation with customers, partners and suppliers

How are travel bonds calculated?

The value of a travel bond varies depending on the travel company – the bond amount is typically determined as a percentage of the travel company's projected gross annual income. This figure is influenced by several factors, including:

Financial health

A travel company with a healthy balance sheet and a strong credit history are generally viewed as lower risk by insurers and, as a result, will likely secure a lower bond requirement.

Your business model

How your travel company does business plays a major role in the value of a travel bond. The provider will assess your business model details, including average booking value, destinations covered, and travel lead time, to determine the risk level and, accordingly, the required bond amount.

Trading history

An established travel business with a stable trading history is typically viewed more favourably by bond providers. As a result, new travel companies with limited trading history are likely to be required to pay a higher bond because they are viewed as higher risk.

By weighing your financial stability against your business model, travel bond providers determine a figure that provides sufficient protection while remaining proportionate to your business's scale. This means the bond is high enough to protect customers but not so high that it becomes a growth barrier.

What is generally included in a travel bond?

While your specific coverage will be outlined in your final bonding agreement, a travel bond typically includes:

Bonds to meet PTR requirements
Bonds to satisfy merchant acquirer or payment processor conditions
Bonds to enable membership of trade associations and industry bodies
Bespoke bonding solutions for non-standard business models

What isn't included in a travel bond?

Fraud or wilful misconduct
Losses or exposures outside of the agreed bonding structure

Benefits of Acquirer Chargeback Insurance

Which One Do You Need: Travel Bonds or Financial Failure Insurance?

While both methods ensure compliance with the PTRs, they generally serve different operational needs. Ultimately, the decision comes down to your need for working capital, your membership requirements and your current stage of growth.

Which businesses best suit travel bonds?

Travel bonds are generally best for businesses with the following characteristics:

An established travel provider with sufficient assets and several years of trading history
Required to hold a bond for ABTA membership
Sufficient cash reserves to cover the collateral requirements without affecting daily operations

Which businesses best suit Financial Failure Insurance?

Financial Failure Insurance is generally best for businesses with the following characteristics:

New entrants who need to achieve PTR compliance without requiring a large amount of capital or an extensive trading history
Growth-focused SMEs that need to reinvest significant sums into recruitment, marketing and technology
Travel businesses with highly seasonal or fluctuating volumes

TL;DR: Travel Bonding vs Insurance

If you are still undecided, these are the key differences between the two insolvency protection methods:

Key Travel Bond Takeaways

Main Benefits: Demonstrates high financial stability and is often required for trade body membership.
Impact on Working Capital: May require collateral or frozen cash, which can tie up working capital.
Generally Best For: Established firms with strong balance sheets and those requiring specific trade body memberships.

Key Financial Failure Insurance (FFI) Takeaways

Main Benefits: Provides immediate compliance with lower upfront capital requirements than bonds.
Impact on Working Capital: Usually premium-based and keeps working capital free for business growth.
Generally Best For: New entrants, high-growth SMEs and businesses with fluctuating seasonal turnover.

TMU Management: Bonding and Financial Failure Insurance For Travel Businesses

When it comes down to it, you need insurance that’s built around how your business actually works. If you're torn about which method is best for your business, we can help you decide. At TMU Management, we offer travel bonding and Financial Failure Insurance solutions to tour operators, travel agencies, airlines, cruise operators, and other travel businesses that are required to comply with the PTRs.

We go beyond standardised cover. The TMU Management team works closely with you to explore your challenges, understand your risk exposure and build a bespoke protection solution that aligns with your strategy. Whether you are an established operator or an emerging travel business, our bespoke bond and FFI solutions are designed to help you meet your compliance obligations and support your growth.

Secure your PTR compliance today. Contact the TMU Management team to find the right insolvency protection solution for your business.

Travel Bonds vs Financial Failure Insurance: Which One Do You Need?

The Package Travel Regulations: Insolvency Protection

Why do some travel businesses choose bonds or insurance over trust accounts?