Lowcost failure leaves some agents without sufficient insurance cover

Lowcost failure leaves some agents without sufficient insurance cover

Agents who scrimped on their insurance and bought non-airline supplier failure insurance (SFI) could end up counting the cost of the Lowcost Travel Group failure.

Firms that used Lowcost Beds to dynamically package holidays and sell them under a Flight-Plus Atol must pay to rebook accommodation themselves and claim on their insurance.

Agent members of the eight Atol-accredited bodies will have customer money secured in trust accounts, but if they have only basic supplier failure insurance they will have to fund any difference in the cost of rebooking rooms.

Accommodation costs have gone up due to the change in exchange rates, the time of year and, according to some sources, because Lowcost was selling beds for less than they paid for them.

Only agents with comprehensive supplier failure cover can recoup the price differential.

Lawrence Assock, head of partnerships at travel insurance specialist Affirma, said some firms were looking to upgrade their cover following Lowcost’s collapse.

He said: “Some companies doing Flight-Plus using Lowcost have been caught out because they only took out SFI. They thought they didn’t need to cover the flight, and it was a cheaper option.”

Assock estimated the cost of Lowcost’s failure for Affirma’s New Zealand-based underwriter CBL will be under £500,000 – the same amount as On Holiday Group’s failure cost the insurer in 2014.

He said this time agents had acted more quickly to rebook beds and so fewer full packages would have to be cancelled, leading to a lower value of claims.

John Hays, managing director of Hays Travel, an Atol-accredited body, said its Independence Group insurer Commodore covers the differential up to the original value of the holiday.

“We had a couple of thousand bookings. So far we have 90% rebooked. We’ve got good plans in place. We’ve seen worse.”

Assock said the people most at risk are those who booked direct with Lowcost Holidays and are having to try to rebook accommodation themselves on the open market.

They are likely to get barely any of their money back due to the lack of financial protection in place after Lowcost left the Atol scheme in 2013.

Assock said some of those customers will have supplier failure cover in their travel insurance if they opted to pay higher premiums.

“The most important people are the customers affected,” he said, “many stressed and distressed and we needed to give reassurance that if they are covered directly or indirectly under one of our schemes that the loss of unpaid components can be recovered.

“As you can appreciate this is a large failure affecting thousands of customers and therefore it may take a little while to complete a full assessment. However, as long as we receive all information and documentation as requested on our claims forms we will be in a good position to work through the claims swiftly.”

The small number of insurance underwriters prepared to offer supplier failure cover has been a concern for the industry but Affirma believes the Lowcost crash will not raise the risk profile of the industry in the insurance sector.

CBL recently had its credit rating raised by agency AM Best to A- providing greater confidence to the trade. John Buckingham, Affirma chairman, said: “A failure of this magnitude will have a financial impact on a wide scale.

“Already we have seen a huge increase in travel companies contacting Affirma to apply for one of our financial protection schemes. Affirma schemes are underwritten  by two major AM Best A-rated insurers which have sufficient capacity to deal with the increase in demand.

“Affirma and its insurers will come to the aid of those with cover in place but going forward we need to ensure that the travel industry and insurance work in partnership to ensure that the right schemes are in place for today’s market and current legislation.”

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