What is Financial Failure?

Although travel insurance is there to protect you should the worst happen, it is not your first point of call when it comes to financial failure of a company. If you have booked your holiday through a travel agent or tour operator then there are several steps you can take first to claim your money back.

Rather than booking a holiday through a travel agent or tour operator, many British holidaymakers now choose to arrange flights, accommodation and other travel extras separately in search of better value.

While this approach can often save money, it may also leave travellers financially exposed if one of the end suppliers ceases trading. Within travel insurance, this is commonly referred to as financial failure, which occurs when a company goes into liquidation and is no longer able to continue operating.

Travellers who book a package holiday (a holiday sold by a travel company that combines at least two different travel services, such as flights, accommodation, car hire or other tourist services, for one inclusive price) through a UK travel company may benefit from additional financial protection under the Package Travel and Linked Travel Arrangements Regulations 2018. Many package holidays that include flights are also protected by ATOL (Air Travel Organiser’s Licence), meaning customers may be entitled to a refund or assistance if the travel company collapses.

However, travellers who book flights, accommodation and other travel arrangements separately may not have the same level of protection, making it important to check whether their travel insurance policy includes Financial Failure or Scheduled Airline Failure Insurance (SAFI) cover.

Another way to book a holiday is through a tour operator. A tour operator may arrange accommodation only, or provide a package that includes both flights and accommodation.

If the tour operator has purchased flights on your behalf and the airline subsequently ceases trading, Civil Aviation Authority (CAA) regulations generally place responsibility on the tour operator to either make suitable alternative travel arrangements or provide a full refund for the affected holiday.

Travellers who book flights directly with an airline may not benefit from the same financial protection provided under ATOL or the Package Travel Regulations.

If you have purchased flights or accommodation using a credit card, debit card or PayPal, you may be able to recover your money through your card provider or payment provider. We recommend contacting your bank, card issuer or PayPal in the first instance to discuss the options available to you before making a claim through your travel insurance policy.

Many travel insurance policies do not include Financial Failure cover as standard. Therefore, if you have booked your holiday arrangements separately, it is important to check whether your policy includes either Scheduled Airline Failure Insurance (SAFI), End Supplier Failure cover, or both.

So, what’s the difference?

Scheduled Airline Failure Insurance (SAFI): As the name suggests, this cover applies specifically to airlines. If your airline ceases trading before you are due to travel, the policy may reimburse the cost of your flights, provided you are unable to recover the money from another source.

If the airline ceases trading while you are abroad, the policy may also cover the cost of returning home in the same class of travel originally booked, again provided the costs cannot be recovered elsewhere.

End Supplier Failure generally provides similar protection to SAFI but can also extend to other travel suppliers, such as accommodation providers, car hire companies, ferry operators or excursion providers, depending on the insurer and level of cover selected.

As cover limits, exclusions and the definition of “end supplier” can vary significantly between insurers, travellers should always read the policy wording carefully before purchasing cover.

As multiple methods of financial protection may be available, your travel insurance provider should generally be contacted after all other potential recovery options have been considered.

If you have paid for your holiday or travel arrangements using a credit card, debit card or PayPal, you may be eligible to recover some or all of your costs through your payment provider. This may include protections such as chargeback schemes or Section 75 of the Consumer Credit Act 1974, where applicable. You should contact your bank, card issuer or payment provider in the first instance to establish whether any such protection applies.

Where costs cannot be recovered through another source and your policy includes Scheduled Airline Failure or End Supplier Failure cover, you may then be eligible to submit a claim under your travel insurance policy, subject to the terms, conditions and exclusions of your policy wording.

Please note that travel insurance will not provide cover where the financial failure, insolvency, or likelihood of insolvency of a travel provider was known, publicly announced, or reasonably foreseeable at the time the policy was purchased or the travel arrangements were made.

Beware, a travel insurance company will not cover a claim if the threat of financial failure was known before purchasing the policy.