The Default Insurance Programme (DIP) provider for BSP-ZA is withdrawing from the market, leaving a number of agents looking for a new method to secure their Iata guarantee at a time when the industry is in the midst of a cash crisis.
Regional head of sales and marketing of the DIP in Southern Africa, Charmaine Brogden, told eTNW that, given the current COVID-19 travel lockdown, the underwriter who insures the DIP is currently receiving few or no premiums because this is linked to ticket sales.
“Couple this with the uncertainty as to when travel will recommence and the decision was taken by the underwriter to issue six months’ notice of cancellation. The cancellation period will enable the underwriter to evaluate its position and, hopefully, as matters resolve themselves (i.e. travel resumes) they may continue with the DIP,” says Charmaine.
Eligible agents have use of the DIP facility for the next six months and coverage will remain in place to protect airlines via Iata against agent defaults, provided all terms and conditions of the policy are adhered to, she adds.
Iata has said it will be in contact with all agents participating in the DIP in the next two months in order to put an alternative financial guarantee in place.
While the withdrawal of the product from South Africa is disappointing, and the timing could not be worse from an agent cash-flow perspective, it is understandable that reinsurers around the world are currently looking at their risk portfolios and making decisions best suited to protecting their businesses, says ceo of Asata, Otto de Vries.
Asata has outlined alternative financial security solutions available to agents:
- Agents can opt for a bank guarantee, which must be issued by a bank registered in their country using Iata’s bank guarantee template. While this option would impact agency cash reserves, Asata says it has asked Iata to consider softening the calculation of guarantees based on the immediate low risk exposure to airlines at present (no sales means no risk of defaulting on payments).
- GDI coverage, a similar product to DIP, is currently offered through Euler Hermes and will be considered by Iata once the association receives an endorsement directly from Euler Hermes.
- Iata is also providing, on an exceptional and temporary basis, the option for agencies to satisfy their financial security requirements by temporarily accepting a cash deposit to be maintained by Iata in the BSP Hinge Account. This is an acknowledgement from Iata of the difficulties in getting coverage by bank guarantee or GDI in the short term, says Asata. The permanent financial security will be required by July 1.
- Iata’s GoLite option – there is no minimum financial security and agents are not subject to annual financial reviews and don’t have to submit audited financial statements to Iata. Under this model, agents will be able to use the customer card after having complied with the Payment Card Industry Data Security Standards (PCI DSS) and can also use Iata EasyPay (prepaid eWallet) for airline ticket issuance without being required to furnish financial security.
