A new financial protection model has been developed for travel businesses which holds consumer funds in ‘non-flight’ trusts and allows suppliers to be paid before departure.
The model includes an insurance policy to protect funds withdrawn to pay suppliers and against the failure of a supplier or the travel business – meaning client funds are fully protected. It is compliant with Package Travel Regulations (2018).
A non-flight trust protects airline funds which are not covered under the Atol scheme as well as other elements, such as accommodation, in the booking.
Trust fund provider PT Trustees has teamed up with financial protection insurance specialists Atlas Voyage Secure to launch Advance Supplier Payment Protection (ASPP), and says it did so as a direct result of the pandemic.
The policy aims to help travel companies, including travel agents and tour operators, remain solvent at a time when cashflows are under intense pressure due to the Covid crisis, said Lawrence Assock, AVS commercial underwriter.
It comes as the Civil Aviation Authority continues its consulation on changes to the Atol regime, which includes proposals to move the sector to trust arrangements.
Assock said: “The last 18 months have been devastating for the travel industry.
“There are a plethora of challenges that lie ahead in rebuilding consumer confidence and customers are understandably asking, ‘how safe are my funds if I pay a travel company for my holiday?’ We believe the solution is to find a way to give 100% assurance to customers that their funds are protected.”
To adhere to the 2018 Package Travel Regulations, travel businesses can protect consumers’ money against the failure of their businesses by either taking out financial failure insurance, buying a bond or opening a trust account.
ASPP allows agents to claw back funds paid out early to suppliers – typically for accommodation – by applying for the money to be released from the non-Atol trust fund on proof of payment.
The money released early will be protected under the ASPP policy should the supplier or travel business fail, ensuring the client gets all their money back in that event.
The amount released would vary but could be up to 25% of the agency’s turnover depending on the individual policy.
Assock said travel businesses were often having to pay deposits to suppliers pre-departure out of their own cashflow, eating into already diminished funds, because the customer’s money was tied up in a trust fund.
He added: “Some larger companies have deals in place to allow them to pay suppliers later while others have enough cash reserves to pay deposits to suppliers at time of booking and still pay the full holiday cost into the trust.
“However, others do not have that luxury, especially in the current environment, and don’t have the working capital to pay suppliers.”
Trusts are required to hold the full holiday cost until a client has returned and funds are then released to pay suppliers and return monies paid early by travel businesses.
Currently, trusts that allow the early release of funds protect these payments under supplier insolvency insurance. In the case of a supplier failure, the agent would need to make a successful claim for the shortfall, while trustees would be unprotected. And in the event of the trust account holder’s failure, trustees would be left with insufficient funds in the trust to refund clients unless the insurer recognises the interests of the trustees in the original supplier failure claim.
A separate repatriation-only policy – designed for companies which do not have an Atol – has also been developed by AVS with PT Trustees to bring clients in resort home following the company’s failure.