Agents warned over rise in bonding costs

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Agents are being warned the cost of bonding could rise in 2021 and require more financial paperwork.

Insurers have begun tightening requirements for travel firms looking to protect consumers’ money against their business failing. 

As a result agents are being urged to get applications in early for Abta bond renewals, due in March.

Heather Harris, head of insurance broker Advantage Financial Services, a division of Advantage Travel Partnership, said there needed to be a “realistic expectation” of increased premiums and guarantee requirements by bond providers.

She said: “The best chance possible for agents to secure their renewal is to collate all the required financial information and submit their application early.

“The pandemic presented formidable challenges on an already shrinking insurance market for bonds. Thankfully we’re seeing insurers provide renewal terms, however few are open to negotiations on price and levels and even less are open to new applications.”

Agents should be ready to produce information not previously asked for such as bank statements, cash flows and forecasts, she added.

Lawrence Assock, commercial underwriter and product developer for Atlas Voyage Secure, which provides financial protection insurance for the trade, said insurers were looking for better management of risk exposure, and travel firms needed to give insurers additional security over managing customers’ funds, such as through trust funds or segregated bank accounts.

He said: “With Covid, insurers have run to the hills, their thoughts go back to the ash cloud issue ten years ago when the risk of multiple travel companies failing would have had a massive impact. Not everyone has left the market but what insurers see is that premiums have been too low for the risk exposure.

“On the bond side, insurers are asking for more security such as hardening premiums. Commercial financial protection products for the trade will come back but, when they do, they will be in a slightly different guise and premiums will be higher.”

Atlas Voyage Secure is already trying “to plug the gap” caused by insurers pulling out of the sector and is working on new insurance solutions for the travel industry for 2021.

Outsourced insurance buyer Mactavish this week predicted premiums to continue to rise next year, despite increases in 2020, warning travel firms could experience “particularly challenging insurance renewals next year”.

“The timing couldn’t be worse for firms that are still being battered by the economic fall-out from the pandemic,” said chief executive Bruce Hepburn.

Travel agent Graeme Brett, director of Westoe Travel in South Shields, said agencies should consider other possible trading models. He said: “It’s going to be much more difficult for agents to get bonding. If it’s left to the last month, agents could miss the renewal date.

“Agents need a ‘plan B’ if they can’t get their bond renewed. They need to know the different options.”

Brett believes agents would benefit from impartial advice on alternatives, such as setting up their own trust accounts. He added: “It would be good to hear the benefits and disadvantages of a trust account as well as consortia explaining the pros and cons of their trust accounts.”

Brett said Westoe’s bond provider asked for a year’s worth of bank statements and details of refund credit notes issued for his company’s own tour operator renewal in September.

“The cost of that bond has increased with that in mind,” he said. “When we get to March, we [the agency business] will be in the same position, particularly with substantially reduced turnover this year. The difficulties in agents obtaining supplier failure insurance and financial failure insurance, to protect bookings with tour operators which do not have bonding, will also have an impact.”

Advantage Travel Partnership said it was already in talks with its consortium members about bond renewals. Leisure director Kelly Cookes said the group’s managed service model, which operates a trust account, has had “a lot of enquiries” from agents looking to switch to an alternative trading model.

John de Vial, Abta’s director of membership and financial services, said: “The current crisis has presented difficulties for members when renewing all kinds of financial protection, with providers in some cases requiring higher premiums, additional information, and security. This is unfortunate, but also simply a reflection of the fact that travel companies currently represent a higher risk to protection providers.

“We are working closely with those members who have experienced difficulties, offering them assistance and advice. Despite these problems, it is important to recognise the majority of our members have concluded their bond renewals, many without serious difficulties.

“There have been calls for Abta to recognise trust accounts, and we will likely be consulting on them in the New Year. We would then consider whether any of the emerging trust accounts on offer do now provide sufficient security and address the issues, for example under the Package Travel Regulations, that have led us to believe that the majority of arrangements available historically have not been compliant with the legal requirements.

“However, it is important to recognise that trust companies are also currently seeing issues around the cost and availability of the insurances that they are required to hold.”

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