Your travel business is constantly navigating financial risks and, in the current environment of uncertainty, robust financial protection has never been more critical. For travel businesses like yours, doing all you can to bolster customer confidence and comply with travel regulations keeps you in business, and this is where financial failure insurance comes into the picture.

In this article, we explore what financial failure insurance is, what it covers and why it’s an essential part of your travel company toolkit.

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What is Financial Failure Insurance?

Financial failure insurance (FFI) is a type of specialised insurance policy that protects customers against financial loss when a travel company they’ve purchased a service from becomes insolvent or ceases trading. The insurance reimburses customers’ payments, meaning they don’t lose money if the travel business fails.

The Package Travel Regulations (PTRs) require UK travel companies, including tour operators and travel agents, to provide financial protection for customer bookings. FFI is one of the methods they can use to meet this requirement. FFI is also one of several financial protection methods needed to obtain membership of prominent travel associations, such as the Association of British Travel Agents (ABTA).

In recent years, financial failure travel insurance has gained increasing attention. After facing immense post-COVID financial pressures and the ensuing collapse of numerous travel companies, consumers are understandably more cautious when making travel plans. They need assurance that their money is protected should a travel company fail between purchase and delivery, and FFI gives them much-needed security.

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What Does Financial Failure Insurance Cover?

FFI provides protection for both travel businesses and their customers. Its function is to safeguard customer payments for travel services in the event that the travel company ceases trading.

To understand the full scope of protection, let’s break it down into two categories: direct and indirect cover.

Direct Cover

Direct cover provides a safety net for your customers’ money if your travel business sadly fails. Should your company collapse after a customer has paid for the service but hasn’t travelled yet, the financial failure travel insurance policy is triggered to:

Refund the amount paid by the customer
Repatriate customers if they’re already abroad

This direct protection means travel businesses meet their legal obligations under the PTRs.

Indirect Cover

Indirect cover, on the other hand, refers to the other benefits your business receives as a result of taking out financial failure insurance. This includes:

Regulatory compliance
A trusted reputation
Customer confidence
Improvements to cash flow from avoiding bonding

The protection offered by FFI is twofold:

The customer feels assured that they’ll get their money back should the travel company fail between payment and service delivery.
Your business ensures it's fully compliant with relevant regulations such as the PTRs, saving you from fines and reputational damage.

FFI: A More Tailored Approach

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 more nuanced assessment. Insurers can gain 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 deep knowledge of the business's workings allows for underwriting that reflects its strengths, which may be advantageous to the travel company in terms of the insurer's appetite and the price they offer. While the coverage size for consumers remains the same, the more tailored approach of FFI can bring various benefits to travel businesses.

Why Financial Failure Insurance is Important for Travel Businesses

While financial failure cover (or an alternative financial protection method) is a legal requirement under the PTRs, it also offers a range of compelling benefits for your travel company:

Compliance With Travel Regulations

The 2018 PTRs mandated that travel companies provide financial protection for customer payments, and FFI is an approved method for meeting these legal obligations. That’s not all – it can also be used as an alternative to bonding, which is often a requirement for travel associations such as ABTA.

Consumer Protection and Trust

Consumers purchase services from companies they trust. A survey by Deloitte found that trusted companies outperform their peers by up to 400%, demonstrating that building trust with your customers strengthens your bottom line.

Showing your customers that you have robust financial protection in place, such as FFI, assures them that their money is protected should something go wrong between purchase and delivery.

Financial Stability and Business Continuity

Unlike bonding, which often requires a significant capital investment upfront, an FFI provider typically offers a more flexible payment structure. This is particularly helpful for companies experiencing cash flow difficulties, as funds from bookings can be used to operate the business rather than be locked away in bonding.

Competitive Advantage in Marketing

When it comes to marketing your travel services, customers don’t want empty words – they want assurances. A survey by ABTA revealed that having financial protection in place is a key priority for travellers, with 85% of respondents saying it was either ‘essential’ or ‘important’.

Demonstrating to potential customers that your travel company prioritises financial protection acts as a key brand differentiator, making you a reliable choice. This is especially influential when it comes to higher-value trips, as customers are likely to prioritise travel companies that market themselves as having the highest standards of consumer protection.

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Who Needs Financial Failure Insurance?

Various types of travel businesses should consider taking out FFI, including:

Tour operators
Travel agents
Accommodation providers
B2B suppliers and wholesalers

While many companies would benefit from having financial failure cover in place, there are some situations where robust protection of this kind is essential. For example, if your business works with lesser-known or specialist third-party suppliers.

While these partners can provide competitive services, they might not have the same level of financial resilience as more experienced suppliers, making FFI an essential safeguard for your business.

How Does Financial Failure Insurance Work?

Here's a high-level overview of how financial failure insurance for travel businesses works, although processes may differ slightly between providers:

If Your Business Fails

Your insurer handles all claims.
Customers who haven’t travelled yet get a full refund from the insurer.
Customers who are travelling at the time of insolvency are usually repatriated.

If Your Supplier Fails

You're responsible for ensuring your customer gets what they’ve paid for, meaning you have to provide an alternative option or a full refund.
You can claim the cost back from a supplier failure insurance (SFI) policy.
Your company is reimbursed, protecting you from financial loss due to supplier failure.

What to Look for in a Financial Failure Insurance Policy

When it comes to choosing an FFI policy, it’s good practice to consider the following before choosing a provider:

Key Terms and Exclusions

Pay close attention to the exclusions outlined in the policy. Examples to look out for include business failures due to fraud and the exclusion of specific geographical regions.

Policy Coverage Limits

Your coverage limit, the maximum amount the policy pays out in the event of financial failure, must cover the total customer payments at any given time. Make sure that the limit aligns with your projected turnover and meets your legal obligations under the PTRs.

Underwriter Reputation

Look for a policy that an A-rated underwriter backs. This rating shows the underwriter in question has a strong financial standing and can meet its financial commitments.

Flexibility For Tailored FFI Policies

No travel business is the same, and your FFI policy should reflect that. Searching for a provider that offers more flexible FFI policies may require a greater time investment than simply selecting a more generic provider, but it may pay off in the long run.

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How to Get Financial Failure Insurance

To get FFI, you’ll need to do the following:

Find a Specialist FFI Provider

Find an FFI provider specialising in the travel industry, such as TMU Management, as they understand the risks and regulatory requirements that come with selling travel services.

Prepare Your Application

You will need to give the FFI provider a comprehensive overview of your business. For example, the TMU Management form asks applicants to provide the following documents/information:

Incorporation document for your business
Documentation showing Shareholding
Photo of utility bill for the business's registered address (no more than 3 months old)
Link to your published terms & conditions
ID Verification
Photo of Passport photo page/photographic ID for any shareholders above 10% ownership
Photo of Passport photo page/photographic ID for any directors
Last 3 Months Bank Statements
Information about your suppliers
Payment terms with agents
Split of bookings travelled per month of the year
Payment Terms with Customers
Your Company Accounts
- Figures based on these uploaded accounts for the below (excluding projections)
  - Annual Turnover/TTV Value
  - Projected Annual Turnover/TTV Value - Next 12 Months
  - EBITDA
  - Total Debt
  - Monthly Interest Expenses
  - Total Expenses
  - Total Current Assets
  - Shareholder/Owner Equity
  - Total Current Liabilities
  - Total Non-Current Assets

Is Financial Failure Insurance Worth It?

Yes, financial failure insurance for travel providers is worth it. The benefits, including regulatory compliance, increased customer trust, financial stability and a competitive advantage, speak for themselves. We believe that FFI is a long-term investment in your company, because it’ll save you a lot of headaches when things go wrong.

At TMU Management, we offer an ABTA-approved FFI policy issued by an A-rated insurer. The policy includes complete end-to-end management of funds, allowing you to comply with the PTRs. Our insurance is designed for the good times and the bad, and our modernised approach seeks to underwrite your business regardless of external shocks.

Arrange a live demo today to discover how TMU Management protects your business and customers from the unexpected.

What Is Financial Failure Insurance and Why do Travel Businesses Need It?

What is Financial Failure Insurance?