Insurance row could leave holiday cash unprotectedAito withdraws 100% financial protection

27 July 2011

Travel insurance

Thousands of holidaymakers could find money they have spent on holidays is not protected because of what has been called an 'enormous loophole' in the regulations governing package travel.

The loophole came to light after insurance company AmTrust Europe said it would not pay out to cover families of school children who had trips cancelled by a company providing skiing trips to schools.

The travel company, Skiing Europe, is a former member of Aito, which is now calling on the government and industry to scrutinise insurance policy wordings to stop the same thing happening again.

School trips cancelled

Skiing Europe had insurance with AmTrust Europe to give refunds for customers if Skiing Europe could not provide their holidays.

Skiing Europe has been cancelling school trips and is under investigation by police, and this month AmTrust Europe said it was cancelling its policy with the company because of a 'material non-disclosure'.

Skiing Europe was a member of the Association of Independent Tour Operators (Aito) until March this year, and Aito said it was still investigating how many schools were affected and how much they were owed.

Aito withdraws 100% guarantee

Aito said it had 23 members with similar policies and could now not be sure those policies would pay out if one of the members got into financial difficulties. It is asking the insurers for all 23 to guarantee that they will honour the policies if there is an insolvency.

It has led Aito to withdraw its promise of a '100% financial guarantee' from 1 August and to warn that many more travel companies could be relying on insurers that might not pay out.

Aito had understood that the Package Travel Regulations ensured that that if protection against a travel company’s insolvency was provided through insurance, the insurer would not be able to say it would not pay out.

However it had taken legal advice that suggested AmTrust was within its rights to withdraw its cover, which meant there was 'an enormous' loophole in the regulations.

Policies unfit for purpose

It said policies which gave the insurer the right to cancel the policy after bookings with the consumer had been made were 'not fit for purpose in providing financial security for the consumer'.

Aito Chairman Derek Moore added, 'This case throws into question the viability of a great many insurance policies which are currently in use in the travel industry.

'Aito thus calls on Government and the industry in general to look very closely at policy wordings so that such an unfortunate situation, denying consumers the cover for which they have paid, cannot occur in the future.'

Aito now wants insurance companies providing cover under the package travel regulations to offer guarantees they will not remove the cover bought on behalf of consumers.

AmTrust Europe confirmed that it was not offering any cover for any claims that might be made on policies issued to Skiing Europe. It said it took the decision after very careful consideration and after finding that material information had not been disclosed to its underwriters, who had also been given incorrect information.

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