Travel Agency Insurance UK | Protecting Against Supplier Failure, ATOL, and MoR Risk

Insurance and Risk Protection for UK Travel Agents: How to Safeguard Against Supplier Failure, ATOL, and Merchant of Record Risks

Insurance is one of the most important but least understood safeguards for UK travel agents and tour operators. It is not just a formality for regulatory compliance; it is a financial protection mechanism that underpins credibility and resilience. The right cover determines whether an agency can survive a supplier collapse, a customer claim, or a data breach.

In the UK, where travel regulation is shaped by the Package Travel and Linked Travel Arrangements Regulations 2018, the Civil Aviation Authority (CAA) ATOL scheme, and ABTA bonding requirements, insurance must be built around the agency’s role in handling client money and its contractual position in the booking chain. Whether an agent acts as a principal, retailer, or merchant of record (MoR) directly affects what protection they need.

Why Insurance is Central to Financial Protection

UK travel businesses handle complex transactions — deposits paid to overseas suppliers, bookings made through bed banks or consolidators, and mixed itineraries combining flight and land components. If any part of this supply chain fails, the agency can face refund obligations and reputational damage even if it was not directly at fault.

Recent insolvencies, such as those of Thomas Cook and STA Travel, highlighted how easily travel intermediaries can be pulled into refund disputes. Agents must therefore maintain insurance and bonding that protect both their customers and their own financial stability.

Key Insurance Types for UK Travel Agents and Tour Operators

Professional Indemnity (PI) Insurance
This is the UK equivalent of Errors and Omissions (E&O) cover and is essential for all travel businesses offering advice, arrangements, or package sales. It protects against claims for negligence, misrepresentation, or mistakes in bookings, including legal costs. ABTA and many other associations require members to hold minimum levels of PI cover.

Public and Employers’ Liability Insurance
Public liability covers claims of injury or property damage caused during the course of business, such as accidents on agency premises or while escorting a group. Employers’ liability is compulsory under UK law for businesses with staff and covers injuries or illness sustained by employees in the workplace.

Supplier Failure Insurance (SFI)
This covers losses if a supplier — such as an airline, hotel, or DMC — becomes insolvent after payment but before services are delivered. It allows the agency to refund clients or rebook alternative arrangements. SFI is especially valuable for agents selling components through dynamic packaging rather than traditional ATOL packages.

Financial Failure Insurance (FFI)
Distinct from supplier failure, this protects the consumer if the agency or tour operator itself becomes insolvent. Many bonding arrangements or trust account structures incorporate FFI to meet CAA or ABTA financial protection rules.

Cyber and Data Protection Insurance
With most agencies now storing customer information digitally and accepting online payments, cyber insurance has become an essential component of travel industry risk management. It covers losses arising from data breaches, system hacks, and GDPR-related claims.

Merchant of Record and Principal Risk in the UK Context

The concept of Merchant of Record — where the agency processes the payment and appears on the client’s statement — carries significant implications in the UK. Acting as MoR means the agency takes full legal responsibility for the transaction. This includes compliance with consumer protection law, refund obligations under the Package Travel Regulations, and potential exposure to chargebacks.

An MoR agency or principal organiser must therefore maintain robust professional indemnity and financial failure insurance, as well as specific cover for chargeback exposure and regulatory penalties.

Retail agents or sub-agents not acting as MoR face different risks. They may not directly control the funds but still bear reputational and legal exposure if the principal or supplier fails. In these cases, supplier failure insurance is critical to fill the gap between consumer expectation and contractual liability.

Agencies operating in the “grey zone” — for example, selling linked travel arrangements or dynamic packages — must take particular care. These structures often blur the lines between principal and agent, which can leave the business underinsured. A professional broker experienced in the travel sector can help assess how ATOL, ABTA, or trust account arrangements interact with insurance requirements.

How Supplier Failure Insurance Protects UK Travel Businesses

Supplier failure insurance (SFI) provides an essential safety net when an overseas supplier goes bankrupt after payment but before travel. It typically covers the cost of refunds, rebooking, and sometimes repatriation. For agents selling non-flight packages or dynamically packaged holidays outside ATOL, SFI can be the only form of protection available to meet the legal duty of care to clients.

CAA-approved ATOL holders must also demonstrate financial protection for flight-inclusive packages, which may include insurance-backed bonds, trust accounts, or combinations thereof. Having supplier failure and financial failure cover in place strengthens compliance and reassures both customers and regulators that funds are secure.

Additional Considerations for UK Agencies

Regulatory Compliance:

• The Package Travel Regulations 2018 define organisers’ refund obligations and require financial protection for consumer prepayments.

• ATOL licensing (Civil Aviation Authority) mandates bonding or trust account arrangements for flight-inclusive packages.

• ABTA bonding and trust structures provide parallel protection for non-flight packages.

Employment and Operational Risks:
Even small agencies must maintain employers’ liability cover and consider public liability for office visitors or hosted events.

Data and Cyber Exposure:
GDPR enforcement continues to rise, and even minor data breaches can trigger significant fines. Cyber insurance helps cover investigation costs, customer notifications, and compensation.

Host and Consortium Arrangements:
Agents working under host agencies or consortiums should confirm what shared insurance applies and where individual gaps exist, especially in professional indemnity and cyber protection.

Choosing the Right Cover

Selecting the right insurance mix begins with understanding your business model and how client money is handled. Review whether you act as principal or agent, whether payments are processed directly, and whether you rely on third-party trust or bonding schemes. Always check exclusions relating to supplier insolvency and chargebacks, as these can vary widely between insurers.

Work only with brokers who specialise in travel industry coverage — general commercial insurers often misunderstand the nuances of ATOL, ABTA, and linked travel arrangements.

Recommended Providers and Brokers

The UK travel sector benefits from several specialist insurers and brokers:

• Hiscox: Strong professional indemnity and cyber options for travel SMEs.

• Towergate Travel: Long-established provider of travel agency and tour operator insurance, including SFI and ATOL bonding.

• Aston Lark: Known for tailored policies covering financial failure, professional indemnity, and trust account compliance.

• Touchstone Underwriting: Offers package policies for travel professionals and online retailers.

Each of these understands the complex interplay between insurance, financial protection, and regulatory obligations specific to UK travel firms.

Conclusion

Insurance is not just a regulatory obligation — it is the foundation of a financially sound travel business. UK agents and tour operators must align their cover with how they handle payments and assume liability, whether as principal, retailer, or merchant of record.

A well-structured blend of professional indemnity, supplier failure, financial failure, and cyber protection ensures that a single supplier insolvency or data breach does not jeopardise the business. As the travel industry continues to evolve, financial protection remains the mark of a professional, trustworthy, and compliant operator.