Does travel insurance cover provider 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 Australia 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.
• No national safety net anymore: The Travel Compensation Fund, which used to protect consumers if a licensed travel agent collapsed, closed in 2015. Some states and territories still run their own schemes, worth checking with your state consumer protection agency.
• 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.
• Check accreditation: Booking through an ATIA-accredited agency adds a layer of protection, since accredited agencies are required to meet financial and ethical standards.

 

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 Australia, 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 (see the table below), 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 product disclosure statement (PDS) 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 an ATIA-accredited travel agent adds a safety net, since accredited agencies are required to hold financial reserves and meet ethical standards designed to protect consumers if the business fails. If your airline collapses, an agent may also 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. Check for state and territory compensation schemes

There’s no longer a national compensation fund for insolvent travel agents in Australia. The Travel Compensation Fund closed in 2015 after travel agent licensing was deregulated. Some states and territories still run their own consumer protection funds, so it’s worth contacting your state or territory consumer protection agency to see what’s available. The ACCC can also help with general advice on your rights under Australian Consumer Law, though it doesn’t run a specific insolvency compensation scheme.

4. Read the PDS carefully

If insolvency cover matters to you, don’t get travel insurance without carefully reading the PDS 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.

5. 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.