Why travel insurance does not
cover airline, tour operator and supplier collapses?
Most international travellers take out travel insurance for
cancellation, for delays, for theft and loss of baggage and
personal items and for medical and hospital expenses on
their trip. Smart traveller (the Department of Foreign
Affairs and Trade website) gives this advice - If you can't
afford travel insurance, you can't afford to travel.
Most international travellers expect their travel insurance
to cover the airfare lost, and not to leave them stranded,
if a flight is cancelled because the airline has collapsed.
After all, most travel insurance policies provide cover for
lost deposits for travel and accommodation arrangements
that you have paid in advance and cannot recover in any
other way if your journey is cancelled or shortened at any
time through circumstances neither expected nor intended by
you and outside your control.
Unfortunately, the travel insurers do not see it that way,
and decline to compensate travellers for airfares lost when
an airline collapses. This comes as a shock to many
travellers. As one passenger stranded overseas by the Air
Australia collapse put it - You get travel insurance to
protect you and now we're all having to have fork out this
extra money. At the end of a holiday it's really hard. (the
Australian 19 February 2012).
The fact that in the case of Air Australia, Qantas made
flights available for the same fare as Air Australia was
certainly most welcome, but the airfare needed to be paid
again. The traveller would also need to pay out of their own
pocket for extra accommodation until the flight was
The question to be asked is: why airline collapses are
not covered by travel insurance?
To answer the question, it is necessary to go to the fine
print, which is found in the product disclosure statement
(the PDS). Either in the cancellation cover section, or
towards the end in the General Exclusions, there is a
condition such as this –
We will not pay if your cancellation fees or lost
deposits arise because of: The financial collapse of any
transport, tour or accommodation provider associated with
your journey. (WORLDCARE TRAVEL INSURANCE)
In the condition it could be called financial collapse,
financial insolvency, or financial default – it does not
matter. What it means is that an administrator, a liquidator
or a receiver has been appointed, with the result that the
provider does not need to honour its obligations to provide
the transport, tour or accommodation.
The condition extends beyond airfares paid. It usually
extends to payments made to hotels and resorts, to car and
campervan hire companies, to cruise lines, to railways
operators, theme park operators, travel agents and
These travel insurance policies contain a condition which
excludes cover for financial collapse:
NRMA (CGU Insurance underwritten), WORLDCARE TRAVEL
INSURANCE (Allianz Insurance underwritten), TRAVEL INSURANCE
DIRECT (Cerberus Insurance underwritten), AAMI (AAMI
Insurance underwritten), ANZ PLATINUM VISA (QBE Insurance
underwritten), NAB OVERSEAS TRAVEL INSURANCE (Chubb
Insurance underwritten), WESTPAC TRAVEL INSURANCE (Vero
Insurance underwritten), AMERCAN EXPRESS TRAVEL INSURANCE /
BUDGET DIRECT (Allianz underwritten).
These travel insurance policies do cover financial collapse
– up to a pre-set limit:
AUSTRALIAN TRAVEL INSURANCE / QBE TRAVEL INSURANCE (QBE
Insurance underwritten), TRAVEL INSURANZ (Lloyd’s of London
underwritten), COMMONWEALTH BANK TRAVEL INSURANCE (Zurich
Australian Insurance underwritten).
Of course, policy conditions can vary between policies from
the budget to full coverage policies by the same issuer. So
if coverage for financial collapse is a concern, the policy
specific PDF should be read.
The Travel Compensation Fund (the TCF) should be mentioned
only to say that it provides cover for the collapse of the
licensed travel agent, and not for any transport, tour or
accommodation provider to whom the travel agent has passed
on the consumer’s money. Therefore, the TCF protects the
consumer’s money only while it is in the bank account of the
One final thought - Smart traveller might need to add to its
travel advice about travel insurance – And don’t forget to
take a credit card to cover unexpected expenses when your
travel insurance does not!