Trade insurance is tipped over trust accounts, bonding

THE topic of regulation to
safeguard clients from the
risk of being defrauded in
the travel chain is once more
front of mind since the recent
Sikuku Travel (TNW October
18) scandal was revealed.
Bonding and other options
have frequently been floated
as possible solutions.
As an example, TNW looked
at Ontario, Canada, where
regulation of travel agencies’
trust accounts was introduced
in 2002. Ontario law decrees
that client funds may only
be deposited into a licensed
agency’s trust account.
If an agent is reported for
incorrectly spending client
funds or selling travel when
not licensed, charges are
laid that often result in large
fines or prison sentences.
The enabling legislation
allows for the industry to
self-regulate and also build
up a compensation fund for
travellers affected when there
is an insolvency.
Asata is currently working
on a regulation report
that compares the various
schemes available for
safeguarding client funds that
have been implemented in
different industries around the
world. Once the report has
been finalised, the findings
will be put to Asata members
to vote.
Otto de Vries, Asata ceo,
says the preliminary research
showed that trust accounts
were not the most practical
option for implementation
in the South African travel
industry due to the rapid flow
of cash in and out of agency
accounts and the nature of
splitting lump sum payments
to distribute to multiple
suppliers, many of which
involved forex payments.
Otto added that group
bonding scheme proposals
had also not been met with
much popularity among South
African retailers who felt that
these schemes might result
in a scenario where the larger,
more stable retail partners
would be subsidising the
agencies that were at risk.
“That leaves insurance,
which is currently perceived
as the option most likely to be
introduced in the South African
travel industry.
“Clients would be offered the
option to take out a voluntary
insurance policy, which
would safeguard their holiday
investment from the risk of a
travel agent or other third-party
supplier’s insolvency,” said
Otto.
Jason Veitch, head of TIC,
said the issue insurers would
face in terms of creating a
product to protect the agent’s
failure, was the lack of support
from the large consortiums.
“The large consortiums are
well funded and do not need
this type of product, which
then leaves a minority of
agency clients who would be
buyers, which would mean
the insurer would not be able
to amass the necessary risk
pool to cover the exposure
a foreclosure would cost the
insurer.”
He added that the promotion
of agent insolvency cover
by a smaller or independent
agent might also be to
their detriment if the larger
consortiums promoted their
independent financial stability.
“We are lucky in South Africa
in that, historically, our agents
have demonstrated that they
are ethical in their conduct
with their clients,” said Jason.
“Looking at the market as
a whole, the likelihood of a
client being defrauded by a
South African agent is very
slim, eliminating the real need
for this type of policy in the
market.”
Garth Wolff, ceo of eTravel,
argues that individual bonding
is preferable to trust accounts,
which, he explains, are costly
to administrate.
Garth said eTravel secured
its Iata guarantee in a fixed
deposit account that earned
a good interest rate for the
group and also safeguarded
the client’s funds as eTravel
was not able to touch this
money. “The problem is that
not all agents operate in this
manner; some tap into clients’
money.”