Insurance and Risk Management for U.S. Travel Agents | Protecting Against Supplier Failure and MoR Liability

Insurance and Risk Protection for U.S. Travel Agents: How to Safeguard against Supplier Failure and Merchant of Record Risks

Insurance is one of the least understood but most critical components of financial resilience in travel. For U.S. travel agents and tour operators, the right coverage can mean the difference between surviving a supplier collapse and facing ruin. The challenge is that insurance in travel cannot be treated as a box-ticking exercise; the coverage you need depends heavily on whether you act as the Merchant of Record (MoR) or operate under a supplier or host model.

In both cases, the goal is to protect the agency, its clients, and the funds flowing between them.

Why is Insurance important?

When travel businesses hold or process client money, they take on layers of exposure, such as regulatory, financial, and reputational. Supplier defaults have become more common since COVID-19, and with many agencies now selling dynamically priced travel rather than packaged tours, client money often moves through multiple intermediaries before it reaches the end supplier. If any link in that chain breaks, agents can be left legally and financially responsible for refunding customers even when the loss was beyond their control.

A solid insurance portfolio is therefore a financial control that underpins credibility and client confidence.

Key Insurance Types U.S. Travel Advisors should consider

General and Professional Liability Insurance
Every U.S. state has baseline requirements for business liability. This policy protects against claims of negligence, bodily injury, or property damage during the normal course of business. For travel agents and tour operators, it also helps meet seller-of-travel licensing obligations in certain states.

Errors and Omissions (E&O) Insurance
Also called professional indemnity insurance, E&O is fundamental for anyone advising or booking on behalf of clients. It covers claims arising from mistakes, misinformation, or service failures, things such as booking the wrong hotel, missing a flight segment, or failing to issue the correct refund. It also typically covers defense costs if a client takes legal action.

Supplier Failure Insurance
This policy protects agents if a supplier, such as an airline, hotel, or tour operator, goes bankrupt after being paid but before services are delivered. It allows the agent to refund or rebook the client without absorbing the full loss. After high-profile insolvencies such as Thomas Cook, many agencies realized too late that their E&O policy specifically excluded supplier failure, leaving them exposed. At Antravia, we remember dealing with the fallout after Thomas Cook went insolvent.

Financial Failure Insurance
Distinct from supplier failure, this protects the customer if the travel agency or tour operator itself ceases trading and cannot deliver the services sold. Some states and consortia require evidence of this protection before authorizing participation in consumer booking programs.

Cyber Liability Insurance
As travel agencies increasingly operate as e-commerce businesses, handling large volumes of personal and payment data, cyber risk has become one of the industry’s fastest-growing exposures. This insurance covers costs arising from data breaches, ransomware, and fraud, and is now regarded as essential for any agency handling client payments.

Merchant of Record vs Non-MoR: Understanding the Risk differentials

Whether a travel agency acts as the Merchant of Record fundamentally changes its insurance profile.
An MoR is the party that processes client payments and appears on the customer’s credit card statement. This means the agency accepts full financial responsibility for chargebacks, refunds, compliance, and consumer protection regulations. Acting as MoR brings control but also, unfortunately, legal liability.

These agencies need comprehensive E&O and general liability cover, alongside protection for chargeback losses and compliance breaches. They should also confirm that their policy includes financial protection against supplier insolvency, since MoRs often make payments to suppliers before travel takes place.

Agents not acting as MoR face a different kind of vulnerability. They may not directly process payments, yet they still carry reputational and sometimes financial risk if suppliers fail to deliver. In these cases, the agency must ensure supplier failure insurance and professional indemnity coverage are in place to protect against disputes, miscommunication, and losses during settlement.

The gray zone arises when an agent handles client funds but does not formally act as MoR. In this scenario, traditional insurance products may not fully cover the agent’s risk. A detailed review with an industry-specialist broker is essential.

How Supplier Failure Insurance Protects Agencies

Supplier failure coverage acts as a financial safety net when a partner collapses after being paid but before travel begins. Policies can reimburse the agent for refunding customers, rebooking alternative arrangements, or even repatriating travelers who are stranded abroad. For flight-inclusive packages, agents may be legally required to demonstrate that customer funds are protected through bonds, trust accounts, or an equivalent insurance product.

For smaller agencies and independent contractors, supplier failure insurance provides an additional layer of credibility when dealing with clients, host agencies, or consortia. It shows that the agent’s operation is structured and financially secure — not reliant on goodwill if something goes wrong.

Other Coverage and Compliance Factors

State-Level Requirements:
States such as California and Florida impose specific seller-of-travel obligations, including bonds or trust accounts that are directly tied to insurance or surety protection.

Federal-Level Rules:
Operators using commercial motor vehicles must hold liability insurance under the Federal Motor Carrier Safety Administration (FMCSA).

Host Agency Relationships:
Independent advisors under a host should never assume they are automatically covered. Some host policies extend partial E&O coverage, but independent contractors may still need their own individual policy for adequate protection.

Destination or Activity-Specific Risks:
Agencies selling high-risk destinations or adventure travel should consider specialized policies, including kidnap and ransom, event cancellation, or extended medical evacuation cover.

How to choose the Right Coverage?

Selecting travel industry insurance should begin with a mapping exercise of your business model and cash flow. Review:

• Whether you act as MoR, and if so, through which systems or gateways.

• The timing of supplier payments relative to client departures.

• The nature of your liability under host, franchise, or consortia agreements.

• Any exclusions in your E&O or cyber policy that relate to supplier insolvency or chargebacks.

An annual review with a specialized travel insurance broker is strongly advised, especially after material changes to your business model, such as adopting new payment technology or expanding internationally.

Best Liability Coverage Options for MoR Agencies in 2025

In 2025, the strongest insurance solutions for U.S. travel agents acting as Merchant of Record typically combine three core pillars:

1. Errors & Omissions insurance for professional liability and service errors.

2. General liability insurance for operational and third-party risks.

3. Supplier failure and cyber coverage tailored to MoR payment risk.

At Antravia, we have heard of top providers including Hiscox, offering flexible E&O and general liability with worldwide coverage; Aon TravelPro, a program developed specifically for travel agents and tour operators with over four decades of experience; and Tokio Marine HCC, recognized for professional and cyber liability coverage with strong U.S. claims handling. We recommend travel agents review the terms carefully, and the best approach is often through a specialist broker who understands the financial and regulatory nuances of travel payments. Off-the-shelf business policies rarely provide the correct blend of coverage for MoR exposure.

Conclusion

Insurance is a compliance requirement and is part of a sound financial control system. U.S. travel agents and tour operators must align their insurance with how money moves through their business: whether they act as Merchant of Record, use hosts, or rely on suppliers. A comprehensive combination of E&O, general liability, supplier failure, and cyber protection ensures that a single supplier bankruptcy, chargeback, or system breach does not threaten the survival of the agency itself.

Travel is built on trust, and trust begins with financial protection that works when it matters most.

References

• U.S. Small Business Administration (SBA): https://www.sba.gov/business-guide/manage-your-business/get-business-insurance

• National Association of Insurance Commissioners (NAIC): https://content.naic.org/consumer.htm

• Aon Travel Professional Liability Program: https://www.aon.com/travel-professional-liability

• Hiscox Small Business Insurance: https://www.hiscox.com/small-business-insurance

Disclaimer:
Content published by Antravia is provided for informational purposes only and reflects research, industry analysis, and our professional perspective. It does not constitute legal, tax, or accounting advice. Regulations vary by jurisdiction, and individual circumstances differ. Readers should seek advice from a qualified professional before making decisions that could affect their business.
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