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Fri, 27 November 2020

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IFSAPPG: Travel providers should fulfil their statutory obligations to their customers

Chartered Insurance Institute | Chartered Insurance Institute

3 min read

Since the Foreign and Commonwealth Office chose to advise against all non-essential travel, it has come to the Insurance and Financial Services APPG’s attention that travel companies and airlines are not fulfilling their statutory obligations to refund customers whom they can’t fulfil contracts with.

In many cases these companies are instead directing their customers to claim on their travel insurance policies, which is now resulting in an escalating consumer protection issue.

The appropriate consumer claims cascade should follow these steps:

  • At first instance a refund should be sought from the airline, accommodation provider or tour operator who are legally obliged to provide a refund.
  • Following that, any bookings made through a credit card may also be able to have costs recovered through section 75 of the Consumer Credit Act or via a 'chargeback claim'.
  • Travel insurance can cover non-refundable cancellation costs, if costs cannot be recovered from elsewhere. Cancellation cover is priced to fill in the gaps only when other consumer protections do not apply.

The right to a full refund is enshrined in both UK and EU law, and the CMA and the FCA have both reiterated the correct consumer claims cascade as outlined above.

Travel insurance is designed to compensate for unrecoverable losses and in most cases, there will be a legal obligation on the travel or credit provider to refund the value of the original trip. Whilst it is right that travel insurance can provide cancellation cover, it is clear that consumer regulations protect a person’s right to a refund in most cases and as such, proper procedure would dictate that it is incumbent on the airline/travel agent or credit card provider to engage with the customer on this basis.

This is not to say the insurance market isn’t already providing much needed support for customers. In fact, latest ABI figures estimate that travel insurers will pay out £275 million due to Coronavirus, the vast majority of which will be for cancellation claims. This is the highest cancellation pay out on record and is expected to be at least twice as much for cancellation pay outs for the whole of 2019. Insurers also expect the record number of claims to increase as we head further into the summer and the virus continues to restrict customers’ ability to travel.

Despite this, we are unfortunately seeing a growing number of claims, which are a direct result of travel providers and airlines failing to properly follow the appropriate consumer cascade enshrined in law. If holidays continue to be disrupted, we could see millions of people trapped in a situation where they can neither have the holiday they dreamed of, nor receive a refund from the company who has been unable to fulfil their contract.

Failure of these organisations to adhere to their contractual obligations, could lead to unsuitable claims being made by consumers. This will have a significant impact on the insurance industry and undoubtedly will lead to a loss of faith in travel insurance. 

The net effect of the loss of trust will be that less people take out travel insurance. Almost a quarter of all holidays are booked without insurance, an increase in this number would only serve to put a greater amount of people at risk of unexpected harm, without any recourse to the much-needed support insurance provides, when they need it most.

Craig Tracey MP, Chair, Insurance and Financial Services All-Party Parliamentary Group said:

“We wish to remind travel operators and airlines of their specific legal obligations to pay refunds and protect their customers.

At a time when people are facing financial and personal hardship, it is only right that these companies go the extra mile to support customer concerns, instead of unnecessarily and unfairly diverting them to travel insurers who should only be dealing with claims when they become an irrecoverable cost, and not dealing with cases where a package travel provider is breaking the law in holding out on refunds.”

 

 

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