Pipeline funds insurance is a type of insurance designed to safeguard your travel business's revenue when an intermediary in the payment chain fails. It protects the payment that an operator or supplier is expecting 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 travel industry vulnerability – the risk of an intermediary taking payment from a customer and then failing before passing those funds to your business. This delay exposes your business to the risk of financial loss, as you’ll still be obligated to provide the service. Pipeline funds insurance protects not just your balance sheet, but also the reputation you’ve spent years building.

What Are Pipeline Funds?

Pipeline funds refer to the money an operator or supplier is expecting to receive from an intermediary, such as a travel agent, which never reaches them due to the intermediary ceasing trading.

Examples of pipeline funds include the customer money held by your intermediaries, which is designated for travel services you are contractually obligated to provide. If the intermediary fails before passing the funds on to you, that money is at risk, but your business is still liable to fulfil the customer's booking.

What is Pipeline Funds Insurance?

Pipeline funds insurance protects your travel business's revenue from the failure of an intermediary that is handling customer payments on your behalf. The insurance protects your company's working capital from shocks that may impact funds along the payment journey, and is designed for several scenarios where pipeline payments fail, including:

Intermediary Insolvency

If an intermediary who sells your services collects money from customers and then ceases trading before they pay you, pipeline funds insurance protects your expected revenue.

Customer Default

In some policies, pipeline funds insurance can protect situations where a high-value client defaults on their payment after you’ve made non-refundable financial commitments on their behalf.

Failed Financial Settlements

This refers to the collapse of a payment intermediary, such as a merchant acquirer, resulting in the loss of funds as it moves through the network.

It's important to distinguish pipeline funds insurance from other financial protection methods. For example, financial failure insurance (FFI) protects your customers' money if your business fails, whereas pipeline funds insurance protects your business's money from the failure of your distribution network. While it shares some similarities with supplier failure insurance (SFI) and scheduled airline failure insurance (SAFI), pipeline funds insurance is more comprehensive, as it protects your inbound funds.

Why Pipeline Funds Insurance Matters for Your Business

Pipeline funds insurance is a safeguard for any travel business committed to robust financial protection, and it offers many benefits for travel businesses:

Protects Your Projected Revenue

The insurance safeguards your expected income from your intermediaries, therefore validating your financial projections by transforming them into a more stable asset, reducing the risk of losing revenue due to external factors.

Maintains Cash Flow Stability

Pipeline funds insurance acts as a form of cash flow protection for travel businesses by preventing a single event, such as a travel agent failure, from jeopardising your ability to operate.

Provides Security Against External Risk

The travel industry is deeply interconnected, meaning your business is significantly exposed to the financial health of your partners. Pipeline funds insurance largely insulates you from risks that are outside of your control, such as the collapse of a travel agent.

May Improve Credibility with Your Stakeholders

Having robust financial protection in place shows your stakeholders that you've adopted a well-rounded risk management strategy. This may improve terms with merchant acquirers and strengthen your negotiating position with suppliers.

Who Needs Pipeline Funds Insurance?

This form of travel industry financial protection is suitable for businesses that handle customer funds and payments to an intermediary, especially when there is a long lead time between customer payment and remittance. The insurance is particularly well-suited to travel businesses that rely on intermediaries, such as tour operators.

Pipeline Funds Insurance for Tour Operators

Pipeline funds cover for tour operators is vital because they are directly exposed to the failure of intermediaries, such as travel agents, under the 2018 Package Travel Regulations. A failure at any point in time could lead to significant financial loss for tour operators, as they are legally obligated to provide the service the customer purchased.

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How Pipeline Funds Insurance Works

Pipeline funds insurance policies typically have similar structures and processes, and understanding how they generally work will help you choose the most suitable policy for your travel business.

How are Policies Typically Structured?

Policies can be structured based on your specific business model, such as paying a premium calculated based on monthly turnover, a fee applied per transaction, or a policy based on the maximum value you estimate will be in your payment pipeline at any given time.

What Does the Insurance Cover?

Pipeline funds insurance tends to focus on the failure of third parties that sell your services, including travel agents and other intermediaries. Your own business’s insolvency, fraud losses, negligence and external risks like health crises or conflicts are usually excluded from this type of policy.

How Does the Claims Process Work?

When a pipeline payment fails, you'll need to notify the policy provider. You'll be required to provide relevant documentation with your claim, including booking confirmations, agreements with the failed intermediary and any other correspondence you've had with them.

The insurer will investigate your claim to verify the loss of funds, and should your claim be approved, reimburse you for the lost funds.

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What to Look for in a Pipeline Funds Insurance Policy

Once you've decided to purchase pipeline funds insurance, the next step is to find a suitable policy. Here are a few considerations to keep in mind during this process:

Coverage Terms and Limits

Every insurance policy has a maximum payout limit. Before taking on a policy, you need to check what this limit is. A good rule of thumb is to ensure that the limit is high enough to comfortably cover the financial loss resulting from a few of your largest intermediaries failing simultaneously.

Triggers and Exclusions

Be sure of precisely what is included and excluded in the policy. For example, some policies may require formal declarations of bankruptcy, while others may have less restrictive triggers.

Claims Timeline and Payout Conditions

It's also wise to choose a provider that is known for fast payouts. When communicating with providers, ask about the expected timeline from filing a claim to receiving the payment, as significant delays may significantly limit your cash flow.

Reputation of the Underwriter

Your policy is only as robust as the underwriter. It's best to seek out an A-rated underwriter, as they are considered to have an excellent ability to meet their financial obligations.

How Pipeline Funds Insurance Protects Travel Businesses: A Hypothetical Example

To demonstrate how pipeline funds insurance shields travel businesses from financial risk, let's explore this hypothetical example:

A tour operator sells its packages through a network of travel agents. One of these travel agents sells packages worth £10,000, and collects the whole balance from the customer three months before travel. The travel agent is scheduled to pass these funds onto the tour operator, but ceases trading before they can do so. As a result, the tour operator didn't receive the money they were expecting. However, the tour operator is still legally obligated to provide the holiday to the customer. This means the business faces a £10,000 hole in its finances.

Fortunately, the tour operator in question had pipeline funds insurance. After providing proof of the bookings and the travel agent's insolvency, the insurer approved the claim and reimbursed the tour operator for the amount they expected to receive from the now failed travel agent. This meant the tour operator could cover all of its costs without damaging its cash flow.

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Is Pipeline Funds Insurance Right for Your Business?

The travel industry operates on a financial model defined by a gap between payment and delivery, and pipeline funds insurance protects your money during that time.

If your business model involves the following, your exposure to pipeline risk is high:

Relying on travel agents or other intermediaries to collect customer payments.
Receiving payments from intermediaries weeks or months after the customer has paid them.
Relying on the financial stability of key partners.

You need a way to protect yourself from these risks before they impact your cash flow, and that's where TMU Management come in. We deliver data-driven, embedded insurance solutions designed to protect and empower travel businesses like yours. Our mission is to build certainty and resilience through intelligent, seamless risk management integrated directly into the financial value chain.

Book a demo today to discover how our pipeline funds insurance protects your cash flow should the unexpected happen.

What Is Pipeline Funds Insurance and Why Does My Travel Business Need It?

What Are Pipeline Funds?