Editor's Blog

Gambling on a risky New Year?
Wed 3 Jan, 2018 at 12:00 am

How risky is the events business? How can we effectively cover our companies against unforeseen risks and, in the worst case scenario, insolvency and bankruptcy? As the go-between in the travel business between the supplier and the consumer, running a travel agency in the current challenging economic climate is not without its perils, as risks ranging from bankruptcy of partners and sudden cessation of services from suppliers, could affect our operations and cause financial loss.

Stakeholders, including meeting planners, professional conference organisers and destination management companies across the region claim there is currently no insurance scheme in place that offers a buffer against such specific business risks.  “Travel agencies are the weakest part of the entire travel distribution chain, but there is no insurance protecting our business,” said Royanto Handayam, ceo of Panorama JTB Tours Indonesia.

Travel agents are also vulnerable as there is no insurance protection against defaulters or scams, some common risks that agencies face, especially as the threshold for entry into the travel agency business is relatively low in certain markets, with inadequate regulation or control mechanism.

There is no insurance policy in existence as it is difficult to prove to an insurance company that you have not been paid by a client whose business is still in operation. If they default, there is also nothing much we can do. If we decide to take them to court, it will have to be in their home country and getting a hearing may take years.

Current insurance protection in the travel agency community is typically limited to the International Air Transport Association’s (IATA’s) default insurance scheme or selected programmes signed up based on their own needs. As IATA agents, it is mandatory for all to take the Default Insurance Programme as well as the bank guarantee payable to banks appointed by IATA. If an agency defaults, the insurance company will settle the payment to IATA. But it does not mean that the default agent is free from any debt. Instead of paying to IATA, it will need to pay back the debt to the insurance company. In this case, the insurance that you are paying is to protect the airlines and not the agents. On the other hand, if an airline collapses, agents will be impacted.

Hong Kong Association of Travel Agents’ (HATA) chairman, Jason Shum, said: “For inbound travel agents, it’s not mandatory to insure for professional indemnity, but agents handling group tours tend to have their protection in place if clients make claims in event of accidents. Therefore, some operators handling inbound groups would buy insurance.”

Other Hong Kong agents like Swire Travel also buys insurance separately for its cruise business, according to managing director Gloria Slethaug.

Earlier this year, the collapse of Tokyo-based discount travel agency Tellmeclub, which affected as many as 90,000 corporate and leisure travellers, has forced the Japanese trade to reappraise its existing regulations on insurance, which were last revised around 20 years ago.

“The bankruptcy of Tellmeclub has the potential to damage the image of the travel industry. For this reason, the Japan Tourism Agency has set up a working group to look into ways to conduct management governance in the industry so that the involved parties can act accordingly, and in a timely manner, in the event of travel agency bankruptcies in the future,” admitted Yoshinori Ochi, director of the board and secretary general at Japan Association of Travel Agents.

Profit margins having diminished meaning some agencies find it difficult to sustain high insurance premium payments to cover themselves, where such insurance is available. In the absence of insurance coverage against partners’ insolvency and defaulting clients, it all boils down to having your own checks and balances in place, such as verification of creditworthiness and checks of financial health.

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