Chris Photi, head of travel and leisure at White Hart Associates, explains
Abta has relaxed its rules on bonding and financial criteria after a backlash from the industry over toughened bond requirements resulted in some members leaving.
The updated Abta Membership Rules and Financial Criteria has guidance on a new Bond+ scheme which provides members with intriguing options to cover non-Atol packages and offers alternatives to Abta’s unpopular bonding scheme based on peak-period projections. There is also guidance on a Retail Premium+ scheme which will replace the Travel Agents Bond Replacement Scheme (TABRS).
Abta’s bonding rules continue to be robust, some would say penal, as has been the case since the outbreak of the pandemic. However, the much-needed changes are more equitable and Bond+ will offer some respite to small and medium-size companies which have struggled to find cover in the insurance market.
More: Comment: Did Abta do right by members during the pandemic?
In addition, Abta has at last corrected some bizarre rules around retail bonds, deciding they will no longer be needed for some retail activities.
At 29 pages, the new rules simplify the February 2015 guidance on financial criteria which ran to 82 pages – albeit the new rules must be considered in conjunction with the lengthy Abta Articles of Association, Abta Code of Conduct and Abta Pipeline Protection Scheme Claims Rules & Procedures.
There is also an unhelpful rider that there could be discrepancies between these. Abta outlines which trump the other in that event.
The new financial criteria have three simple terms of reference to assess the financial strength of members: 1) Share capital, 2) Adjusted net assets and 3) Adjusted net current assets. All must show a surplus. Abta has done away with its archaic system of insisting members have a net current asset balance equal to at least 4% of principal turnover although this remains a factor in the calculation of Bond+ options. The adjustments to net assets and net current assets are broadly as before.
There will be a three-year transition to July 1, 2026, in applying these criteria.
Bond+
Bond+ will be introduced from July 1, 2023, giving members a choice of bonding options to cover their non-Atol packages.
Members may continue to bond as currently with a maximum peak-period bonding assessment based upon customer money collected in advance, partially mitigated for payments collected by UK credit cards, alongside the mandatory shortfall insurance premium payable to Abta’s ‘captive’ [in-house] insurer, Abta Insurance PCC Ltd (AIPCC).
However, members will be provided with an alternative, risk-assessed lower bond (never less than 10% of projected turnover) alongside the mandatory insurance premium, plus an additional shortfall insurance premium called Principal Premium+. These terms will be presented to individual members case by case.
Principal Premium+ will be calculated by the AIPCC Board – on which some of the Abta secretariat sit – with reference to the new financial criteria, an adjusted net current asset balance equal to at least 4% of principal turnover, and the member’s bonding application form and customer-monies profile.
The calculations for Principal Premium+ will not be based on a set formula or made public as Abta believes this would disclose “commercially sensitive information”.
Abta’s Pipeline Protection Scheme bond levels remain unchanged, but there have been some interesting changes to the retail bond scheme.
TABRS and Retail Premium+
Abta has replaced TABRS with a similar insurance scheme called Retail Premium+. Eligible members – those who meet the new financial criteria and whose Applicable Risk Turnover is under £500,000 – can pay a premium to Abta Insurance PCC, at defined rates, instead of providing a retail bond.
In addition, Abta has corrected some anomalies in its protection scheme by no longer requiring members to provide retail bonds for the following retail activities: corporate sales under a general agreement; sales of non-Abta ‘principals’; and sales of overseas accommodation-only.
For many years Abta has required members to provide bonds to protect pipeline monies when they act as agents for non-Abta principals. There was no discernible reason for this other than to collect larger bonds because non-Abta principals cannot make claims against the Abta bonding scheme.
Abta also, for many years, applied a bizarre approach to retail members selling accommodation-only overseas as agents – levying a bond on such sales at 10% of the gross retail turnover, while permitting principal members not to bond identical accommodation-only sales. It’s welcome this has ceased.
These changes amount to a step in the right direction by Abta although it is disappointing the calculations for the Principal Premium+ remain secret.
Chris Photi is head of travel and leisure at White Hart Associates, specialist accountants for the travel industry
More: Comment: Did Abta do right by members during the pandemic?