The Association of British Insurers has come out against the proposed £1 charge on ATOL-covered holidays expected to replace bonding next April.
In its submission to the consultation on the proposals, the ABI warns: “The financial forecasts are overly optimistic and the proposed charge is likely to be inadequate to cover failure costs. Holiday protection will, in the long run, cost more.”
The ABI argues the cost of future failures will outstrip Civil Aviation Authority projections, saying: “The costs for the past three years have been higher by almost 50% than the assumed average for the future.”
The levy on low-priced holidays will represent “a subsidy of more affluent customers”, says the ABI.
“Failures will be more frequent without financial vetting and monitoring by the insurance market. Overtrading and fraud are likely to increase without the same credit analysis and monitoring.”
The ABI claims the trade has overstated the costs of bonds, arguing: “Travel industry estimates that bonding costs £2 per person are unsubstantiated. The true cost is under £1 per passenger.”
It also questions industry assumptions that the charge will not rise.
An industry source said: “The ABI’s fundamental objection is that bonding has been very lucrative and it fears the party is over.”
Tour operators have complained long and hard about the cost of ATOL bonding and remain unhappy that airlines will be excluded from the charge.
The Department for Transport is committed to replenishing the heavily-in-debt Air Travel Trust fund whether or not a charge replaces bonding and the ABI objections are likely to fall on deaf ears.
The Civil Aviation Authority said most consultation submissions were in broad agreement with the proposals. Details of the scheme are expected in the autumn.