Blog homeIn the UK there are plans to alter how travel purchase protection works. All the discussion so far has been on the mechanics of the protection.
I am still confused as to the reasons behind needing all this bureaucracy in the first place. Doesn’t consumer travel insurance, the Package travel regulations 1992 and credit card companies provide sufficient cover already?
To me, these are the factors that are involved:
- Protect the travel agent from supplier failure
- Protect suppliers from travel agent failure (not something the retail travel trade press mention too much)
- Protect consumers from any failure within the booking process
- Protect consumers from any failure/cancellation within an interlinked chain of trip components (e.g. a package) – for example if the supplier sells both a flight and accommodation, any alternation to one should be compatible with the other
- Ensure that consumers can be repatriated in case of airline failure
- Keep the government off the back of the travel industry – as if we don’t self regulate, the UK government / European Union may create their own solution (such as enhancements to the package travel regulations currently in place)
- Keep a the credit card companies off the back of the travel industry (not sure that is working!)
- Empire building by the national bodies (ABTA etc).
- Complexity over time – the system has been added to and added to. Systems rarely become simpler over time.
We have to remember when proposing adjustments to the protection system that consumers now have a very credible alternative. They can book direct (via the web) both to remote destinations and with airlines. I would expect that any change to the protection system will just add complexity and cost to the existing travel industry players making the protected system even less competitive vs the direct, less protected, system.
Before consumer advocates suggest that consumers must have protection – well yes – but that could be fully provided by the travel insurance system. Insurance companies are in a great position to understand and put a value on risk. That is what they do. Also consumers understand the concept of insurance and won’t have to figure out in detail which bits of their trip are covered and which aren’t. Insurance could be enhanced to cover it all.
Easy!
Further reading: Article from the BBC covering 5 consumer laws you really ought to know
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From someone who has read the hundreds of comments on his blog about the farce that is the ATOL/ABTA refunds I have to say that the whole process needs re-engineering. Too many different ways to book a holiday, which mean so many different ways to receive a refund.
You travel folk like to complicate everything.
Yep – I agree – get rid of protection – and enhance the features of travel insurance policies. Hence single place consumers go for issues such as a supplier going out of business. Easy to understand from the consumers perspective. Easy to administer from an industry perspective.
Won’t happen though because the ABTA system doesn’t see itself in competition with the direct, unprotected, system. Hence don’t see why they need to improve its competitiveness.
Good article. I would add that from an industry perspective bonding is also an important kite mark. Obviously travel is highly unusual in that something intangible is being sold often a long time in advance and at a reasonably high value. I wouldn’t like to hand that process entirely over to credit card/insurance companies.
How do insurance companies assess risk on every company out there? Would they be interested in going to far on this? Would they not want to work this alongside a more established consumer protection scheme? Credit card companies tend to require a standard and recognised bond as well as (often) other financial protection for themselves. Surely insurance companies would have no incentive to work with less established, less secure travel firms too? Would be interested to hear about the idea in more detail.
You’re right Alex, the current protection isn’t serving either the industry or the consumer.
Abta’s recent announcement that they will not cover failure where Abta agents book through non-Abta bed banks shows how hopeless the system is. People don’t care whether a supplier is covered or not, they just want to know that if they book with somebody who offers financial protection they are covered. It makes the Abta name worthless if there are certain circumstances where the consumer is not covered. They seem to let down the industry with point 7 as well if Freedom Direct is anything to go by.
Why not have a government recognised (but not run) scheme whereby the banks secure any consumer funds? In return the banks are made preferred creditors. That way companies who have significant assets such as property or excellent cash flow would have to pay very little or nothing for financial protection. It may not appear to favour start-ups but if the business plan is sound banks should cover it. It would lead to many more flexible solutions and would put an end to the good companies subsidising the bad.
@ Sam
Insurance schemes such as TOPP (available in the UK) are already in place. However the premiums (about 5 USD per booking) are paid for by the tour operator, not the customer. Hence it only covers the aspects that the tour operator is providing, not any independently booked components the consumer books themselves.It doesn’t handle repatriation based on airline failure, hence isn’t exactly the same. TOPP is more about being able to convince the consumer to hand over their money many months prior to product delivery as that is what it protects (on the consumer’s behalf) (it also helps the tour operator get a merchant account required for credit card transactions)
So what I suggest is a TOPP like scheme but build that level of premium into conventional consumer travel insurance policies instead. Would also require consumers to buy their insurance prior to booking, rather than, like me, buying it the night before travel for independently booked trips!
@ Simon
I believe any solution has to make the system less complex to the consumer and less costly to the protected travel industry. Otherwise customers will just book direct with destination suppliers. As you say, consumers don’t know how they are protected if some of their suppliers offer protection, some don’t…. etc…. but consumers do understand the concept of insurance…. paying a premium for unusual events when you get in trouble.
Alex, I do like the idea of it being covered in consumer travel insurance. But it does mean that insurance premiums would rise and it takes the onus completely away from the travel companies. In theory, as Sam suggests, without any safeguards in place you would get more insolvent companies trading, more failures, higher premiums, until it becomes detrimental to everyone.
Simon
I think agents (and many forms of tour operator) are on borrowed time (vs a new structure for the travel industry based on affiliates (not part of the transaction contract) and destination based suppliers / tour operators with destination capital investments).
Hence if the protection system, in its new design, adds cost and bureaucracy to travel agents / tour operators this will just speed up the move to this outcome. Agents will realise they can make equal money as affiliates without any of the paperwork and risk.
I probably ought to say that the TourCMS strategy is based around this industry structure outcome happening hence I do have a vested interest. I would love ABTA to make the new consumer protection system so complicated and costly as they can as it would suit most of my customers just fine (as they are mainly direct sell destination based local tour operators). The more expensive their competitors become the better!
ABTA can take my advice and that would be bad/neutral for us. Or they can disregard it and that would be great for us. I am backing the fact that no one has ever taken any of my advice upto this point
Sorry if I am bit off topic here. Do we already know which bedbanks are “ABTA bonded”?
Alex,
Why shift the problem in to the insurance industry which consumers do not have complete confidence in paying out when things go wrong ? And it still creates a cost that has to be absorbed by the tour operator/consumer.
Would it not be simpler to have a custodial system whereby the consumers money is held in a custodial account (bit like a joint bank account where the tour operator and consumer have “signing authority”). All suppliers in the chain (operator, agent, accommodation providers, caterers , transport suppliers…..) have confidence there is money to cover their component of the holiday should any other suppliers in the chain fail. It won’t change the tour operators cash flow problems but might make consumers happier if they’re allowed to keep one hand on their money and it reduces the need for lots of complicated risk assessing !
Or is this being too simple and too bias towards consumers ?
Paul
Hi Paul
What you outline is sensible. But it still makes the protected system compete with the unprotected system. Consumers, when buying some services that are protected and some that are not protected will still get confused and misunderstand what is going on.
ABTA and the European Gov can only really control products sold within UK / Europe that are consumed here. Nothing stopping a consumer going online and booking with a remote destination. Hence ABTA etc only have a part of the outbound market that they can protect….
Which is why by moving the emphasis to better travel insurance this would protect the entire outbound market, not just those sold by the protected part of the marketplace.
Alex,
ABTA has been saying for years that financial protection in the travel industry needs to be reviewed as it is overly bureaucratic and still leaves large sections of the public unprotected. Our latest suggestions for reform and expansion of the ATOL scheme simplify matters and will also mean that many more customers will be covered if their travel company fails. The European Union is also reviewing the Package Travel Regulations and we have made our recommendations for a more wide ranging and equitable system that will accurately reflects how the public book their travel arrangements in the 21st century rather than almost 20 years ago.
There are already insurance products available which cover travel company failure, but these place the onus on the consumer to purchase these products and they usually refer off elsewhere [ABTA/ATOL/Credit card] and are very much the provider of last resort. If they were going to be the primary source of cover this would undoubtedly have implications for the size of premiums as well whether they would offer this cover in the first place.
Relying on credit cards for cover is also flawed as the Consumer Credit Act does not provide 100% coverage in all circumstances and already banks are reconsidering sections of the travel industry as being credit worthy. If you were to scrap current or future financial protection schemes this would have very serious implications for the entire industry and vastly narrow consumer choice.
Lastly, all of your respondents have outlined schemes that already exist; trust accounts, bonding, travel insurance. Bonding has been for over forty years, the most successful and efficient way to provide cover. Now we need one, simple scheme that covers all travel arrangements which spreads the financial burden equally over the whole industy and all travellers , they have one in Holland already, its called a low cost Government run levy scheme.
Hi Alex
Agreed ABTA and European Govs can only control products sold in UK/Europe. But the Consumer and his banking system can control where ever and what ever he purchases.
If a consumer goes online and books with a remote destination he’s got to pay for it using the services of a bank or payment system .. a custodial scheme is merely an extension of their services. I would have thought it will be more cost effective for the banks/payment systems to enhance their service than a better insurance layer ? And you probably can dispense with protection regimes by ABTA etc
Give the consumer some responsibility with education to make his purchases wisely and the system to retain some control. You may have already done your research and know that better travel insurance is what the consumer demands but I would imagine that consumers would rather simply keep one hand on their money than pay a premium and relinquish a degree of control to an insurance company .
Paul
Sean
Please tell us more about the Dutch scheme. Is a levy still not an extra cost on the holiday ?
BTW .. A custodial scheme does not already exist in the travel industry. It is different from a trust account in as much that the consumer has a role to play in operating it and a dispute resolution service comes into play if parties cannot agree the release of monies.
Paul
Sean is away for the rest of the week. The Dutch levy was for all travel arrangements made through a retailer. We haven’t looked at it for a while, but the fund got so big that they could stop paying into it. It was what the new ATOL levy was based on, although that – as we know is different again.
No matter what scheme is devised, it costs someone to provide financial protection, which is why it is such a hotly debated issue.
Its important to rather simplify everything. The more confusing and chaotic a process is the less chance of it succeeding and more chance of high drama and problems. Case in point