Does Travel Insurance Cover Insolvency?

Quick summary for busy readers:

• What it means: Travel service provider insolvency, also called financial default, is when an airline, travel agent, cruise line, tour operator or other provider becomes unable to pay its debts and stops trading.
• Most policies exclude it: The majority of standard travel insurance policies in New Zealand don’t cover this at all, and travel agent insolvency specifically is almost never covered by any insurer.
• A few insurers offer limited cover: Usually only for the insolvency of a transport provider like an airline, typically capped somewhere between $1,500 and $10,000.
• Pay by credit card: If a provider collapses, you may be able to request a chargeback from your card provider, generally within 120 days of the transaction or your travel date.

 

Travel companies – like airlines, agents, cruise lines and tour operators – sadly collapse more often than most people realise. This might make you wonder: if your airline, agent or tour operator went under tomorrow, would your travel insurance actually help? For most travellers, the answer is no.

Here’s what travel service provider insolvency actually means, whether your policy is likely to cover it, and what you can do to protect yourself either way.

What is travel services provider insolvency?

Travel service provider insolvency, sometimes called financial default, is what happens when a company involved in your trip becomes unable to pay its debts and stops operating. That could be an airline, travel agent, wholesaler, cruise operator, tour operator, hotel, car hire company, railway or theme park.

In New Zealand, the three most common insolvency procedures are voluntary administration, liquidation and receivership. Once a provider enters one of these processes, they usually can’t keep trading, which can leave travellers out of pocket, or in some cases, stranded overseas.

Does travel insurance cover if a company goes bust?

Usually, no. Most comprehensive travel insurance policies specifically exclude financial default, meaning if your airline, agent or tour operator collapses, you generally can’t claim for the resulting losses. Travel agent insolvency in particular is almost never covered, regardless of the insurer.

A small number of insurers do offer some cover, but usually only for the insolvency of a transport provider you’re booked to travel with, like an airline or cruise line, not the agent or wholesaler you booked through. Where it’s included, it’s often only available on specific policy tiers, and cover is typically capped somewhere between $1,500 and $10,000.

Given how limited this cover is across the market, it’s worth checking the Policy Wording of any policy you’re considering rather than assuming insolvency cover is included.

What can you do if a travel provider becomes insolvent?

There are a few things you can do to protect yourself if a travel provider does become insolvent.

1. Book through an accredited agency

If you book directly with an airline or operator you don’t know much about, you won’t have much protection if something goes wrong. Booking through a travel agent that’s a member of TAANZ (the Travel Agents’ Association of New Zealand) gives you some extra protection. TAANZ requires its member agents to be bonded, which basically means they’ve set aside money as a guarantee. If your agent takes your payment but doesn’t actually pass it on to the airline, hotel or tour operator you booked with, that bond can be used to pay affected customers back. The total payout for any one agency’s collapse is capped at $100,000, so if a lot of people are affected at once, individual payouts could end up smaller. You’ll also need to make a claim within three months of the failure. If your airline itself collapses for reasons that have nothing to do with your agent, a TAANZ member agent may still be able to help you get a refund or get home if you’re stranded.

2. Pay with a credit card

Paying by credit card gives you access to a chargeback if a provider collapses before delivering your booking. Your bank can reverse the transaction and recover the funds from the merchant, though chargeback windows are strict, usually within 120 days of the transaction or your travel date, whichever is later. Note: Debit cards don’t offer the same level of protection, so it’s worth putting bigger travel purchases on a credit card where and if you can.

3. Read the Policy Wording carefully

If insolvency cover matters to you, don’t get travel insurance without carefully reading the Policy Wording first. That way you’ll understand exactly what’s covered, what’s not, and what the caps and conditions are. And if you’re not sure about anything, call the insurer and ask before you buy.

4. Compare your options

Since so few insurers offer any cover for provider insolvency, it’s worth shopping around if this is a priority for your trip. Comparing a handful of policies side by side is the easiest way to find one that includes it, at a level of cover that’s actually useful.