When a travel agency or an airline becomes insolvent, the same question arrives within days of the news: ‘I have trip cancellation insurance – will I get my money back from it?’ In most cases the answer is no, and this is not ill will on the insurer's part but the logic of the product: cancellation (storno) cover is for cancellation by the traveller for their own documented reason, not for the disappearance of the service provider. In such cases the money can come back from elsewhere – from the agency's compulsory financial security, from a card chargeback or from the liquidation proceedings – and each route has its own deadline and paperwork. As a broker, what I see is that anyone who waits for the cancellation cover loses valuable weeks; this article shows where it makes sense to turn in each situation.
- Cancellation (storno) cover is for cancellation by the traveller for their own documented reason; under Hungarian policy conditions the insolvency of the service provider is typically not an insured event, and several sets of conditions expressly exclude it.
- If a travel agency fails, the financial security required by Government Decree 213/1996 – a bank bond, insurance or a deposit – covers bringing travellers home and refunding the price paid; claims must be lodged with the security provider as set out in the government office's announcement.
- There is no compulsory financial security for airline insolvency: for a ticket bought as part of a package the tour operator is responsible, for card payments a chargeback through the bank is the realistic route, otherwise a creditor's claim is what remains.
Why does cancellation cover not pay for insolvency?
The insured events of trip cancellation insurance are listed item by item in the policy conditions: illness, accident or death of the insured person or a close relative, damage at home, and in some products a few further causes, such as dismissal from employment or a summons. The insolvency of the service provider – the agency, the airline, the hotel – is typically not an insured event under Hungarian policy conditions; in fact, several sets of conditions expressly name it as an exclusion. Cancellation cover is therefore the answer when you cannot travel – not when there is nowhere to travel to or nothing to travel with. The same applies to flight cancellations: these are governed by the airline's obligations under passenger rights rules, not by insurance – I have written about where the line runs in the articles on what cancellation cover pays for and on cancellation cover myths. There is one rare exception: add-ons covering the insolvency of the service provider exist on the international market, and such an element may also appear in some Hungarian products; if it is not named in the policy conditions, there is no cover for it, and this has to be checked before you buy, not after the news of the insolvency.
Travel agency: the financial security is the answer
In Hungary, tour operators are required to maintain financial security. Under Section 8 of Government Decree 213/1996 (XII. 23.) on tour operating and travel agency activities, the security can be a bond issued by a bank, an insurance contract concluded with an insurer, or a cash deposit placed with a bank, and its amount is linked to the agency's turnover. Section 10 of the Decree states what it is for: it must provide cover for bringing travellers home, for the costs of an enforced stay abroad, and for the refund of the deposit and the travel price paid, if the tour operator becomes insolvent. The same section provides that travellers can enforce their claims directly with the insurer or bank providing the security, and that the Government Office of the Capital City Budapest, which keeps the register, takes part in the use of the security. In practice it works like this: the government office issues an announcement about the insolvency and about who the security provider is; travellers lodge their claims in the manner and within the deadline given, enclosing the travel contract, proof of payment and the documents relating to the cancellation or non-performance; the security provider pays in accordance with the Decree and its own contract. If the security does not cover all the claims, the security provider pays out from the available amount, and the remainder can be lodged as a creditor's claim in the liquidation proceedings. Government Decree 472/2017 (XII. 28.) on contracts for travel services also requires protection against insolvency for package travel and requires information to be given about the security – which is why the name of the security provider appears in the travel contract. An important limit: the security is tied to the tour operator's activity, typically to package travel; if you bought only a flight or only accommodation from the agency, your situation is different, and it is worth asking the agency what the security covers.
Airline: no financial security – the bank and the liquidator remain
There is no compulsory financial security for airlines comparable to the one for tour operators. The EU air passenger rights regulation (Regulation (EC) No 261/2004) requires a refund or re-routing when a flight is cancelled, but in practice this is hard to obtain from an insolvent airline: the claim becomes a creditor's claim in the liquidation proceedings, and getting it satisfied is slow and uncertain. The three realistic routes are therefore as follows. If you bought the ticket as part of a package, the tour operator is responsible for the package and the financial security rules apply to it – the loss of the flight is its performance problem, not yours. If you paid for the ticket by bank card, under the card schemes' rules you can initiate a chargeback (a reversal of the card payment) with the issuing bank on the grounds that the service paid for was not provided; the deadlines and conditions for this vary by card scheme and by bank, so after the news of the insolvency it is worth calling your bank as soon as possible and keeping the ticket, the cancellation notice and the proof of payment to hand. If you paid for the ticket by bank transfer or in cash, what remains is to lodge a creditor's claim with the liquidator, after the notice of the opening of the liquidation proceedings has been published. Under the Hungarian Bankruptcy Act, the claim must be lodged with the liquidator within 40 days of the publication of the liquidation; a claim lodged after 40 days but within 180 days is still registered by the liquidator, but is satisfied only after the claims lodged in time, and the 180-day deadline is a strict cut-off after which the right is lost – a registration fee must also be paid when lodging the claim. Travel insurance can come in here only to the extent that the policy conditions include ‘delayed departure’ or trip interruption cover, and continuing a trip already begun while abroad, or organising the journey home, gives rise to costs – but the policy conditions often exclude airline insolvency from these covers too, and the additional costs abroad follow the logic described in the article on force majeure and the limits of cover.
A typical case and its lesson
A typical case – one I have come across as a broker: on hearing that the agency had become insolvent, a traveller wanted to submit a cancellation claim, arguing that they had cancelled the trip themselves because they did not want to travel with an unreliable provider. The insurer rightly rejected it – the reason for cancelling was not an insured event named in the policy conditions – and the claim had to be lodged with the provider of the financial security, by the deadline given in the government office's announcement. The lesson is twofold. First, the first reaction to news of an insolvency should not be the cancellation cover but the question: who is the security provider, and when does the deadline for lodging claims expire? Second, if an agency is not yet insolvent but merely shaky, cancelling on your own initiative still counts as cancelling ‘at will’ as far as cancellation cover is concerned, and the agency's cancellation fee applies; in that situation, the security only becomes available if the agency actually becomes insolvent, and under the Decree its use requires the prior consent of the government office. The pop-up ‘insurance’ offered on booking sites typically does not help with this either – what it actually contains is shown in the article on booking-platform insurance.
What to do – before booking and after the news of insolvency
Before booking: check in the government office's register that the agency is a registered tour operator, look for the name of the security provider in the contract, and ask whether the security extends to the service you are buying. Pay by bank card if you can, because that keeps the chargeback option open. Keep the contract, the confirmations and every proof of payment in one place. After the news of the insolvency: do not start with the cancellation cover; find the government office's announcement, note the deadline and method for lodging claims, put the documents together, and if you paid by card, call your bank in parallel. If you are already abroad, in the case of an agency insolvency the journey home is to be organised at the expense of the security, as set out in the government office's announcement, and in the case of an airline insolvency at your own expense, documenting the costs. If you have a question about which route is open in relation to your own booking, I help where I can – the deadlines, however, are set by the government office, the security provider and the bank, and nobody can extend them after the event.
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Sources
- Government Decree 213/1996 (XII. 23.) on tour operating and travel agency activities – Section 2 register (Government Office of the Capital City Budapest), Section 8 forms and amount of the financial security, Section 10 purpose of the security and the traveller's direct claim
- Government Decree 472/2017 (XII. 28.) on contracts for travel services – protection against insolvency, information about the security
- Regulation (EC) No 261/2004 – air passenger rights in the event of cancellation (refund, re-routing)
- Government Office of the Capital City Budapest – official register of travel businesses, announcements
