Risk & Insurance

Tourism Insurance Part 1

We all know that insurance is an essential component of risk management that requires an annual review to adjust to changes in the commercial circumstances and legal environment in which we operate. What we may need reminding of are the specific risks that are unique to the tourism trade and need to be considered when mitigating and transferring risk. By Des Langkilde.

This 7-part series on ‘Understanding Tourism Trade Insurance’, has been extracted verbatim (with slight editing) with acknowledgement to the Southern African Tourism Services Association (SATSA) Insurance Directive and the sponsor of the booklet SATIB Insurance Brokers, in whose employ I originally re-wrote the text in 2005 and updated the booklet in 2015.


Insurance is an emotive issue and viewed by most as a ‘grudge purchase’. No-one likes paying insurance premiums for something that may or may not occur but it just might happen to your company and you owe it not only to yourself and your clients, but more importantly to the tourism industry at large, to be adequately insured and fully aware of the procedures in the event of an accident or a claim.

The SATSA Insurance Directive is intended as a general guide for companies operating in the tourism field within Southern African. It is directed to all companies undertaking tours, offering accommodation of any nature, those providing an auxiliary activity, and operating or hiring out any form of transport whatsoever.

It is not the intention of this Directive to frighten anyone, in fact, quite the contrary. It aims to put forward a realistic set of parameters that apply to Southern African conditions and circumstances and is not based on threats and prohibitive laws that may govern other countries.

As a professional tourism service provider you live, work and operate in Southern Africa and it is imperative that it is the tourism industry itself that set the guidelines by which you are prepared and in fact able to function.

Obviously, these must be based on world norms and the industry must aspire to first world standards.


The European Community Directive 90/314/EEC relating to the Package Holidays and Travel Trade Act, 1995 is legislation that governs the conduct of Tour Organisers operating from within European Community member states.

The Act seeks to protect the consumer by making the Tour Organiser liable for the proper performance of the whole tour package, even if the failure or improper performance is due to the fault of a supplier outside of the EC of one or more of the services provided.

If a tourist books a safari holiday in South Africa through an organiser in the UK and is injured at a Game Lodge in South Africa, he need only prove that the Lodge was liable for the injury in order to succeed in a claim against the organiser. Thus, the UK tour organiser is held legally liable for an incident where there is no ‘fault’ on their part.

In light of this ‘liability assumed by contract’ ruling, tour organisers in the EC member states are very cautious in their dealings with Southern African tourism service providers and will want reassurance that the service provider’s liability insurance will respond to valid claims and extends to cover the service provider’s sub-contractors.

In effect, the local tourism service provider would need to ensure that their liability insurance policy wording extends to cover the EC Directive as ‘liability assumed by contract’ would generally be excluded in most insurance policy wordings, unless specifically requested.


The first thing to understand about risk is that it is part of our everyday lives.

“Risk is universal, present in all things, all lives, inherent in being. The concept of a person free from risk is as theoretical as the concept of perfection” (Jawarharlal Nehru – 1889-1964).

Given that risk is inherent in being, the question is not so much about how to avoid risk as it is about how to minimise the consequences of risk occurrence, from both a financial and reputation point of view.

Consider these three basic theoretical principles:

  • Whenever an event results in the loss of tourist lives (especially international tourists), the global media are almost certain to report it, forcing the local tourism industry to be embroiled in acts of crisis management.
  • Perceptions about a particular tourism related crisis tend to be almost as devastating as the crisis itself.
  • The farther away one is from a crisis location, the worse the crisis will appear to be and the longer the crisis will remain in the collective travel subconscious.

These principles highlight the need for responsible risk management procedures in every aspect of the tourism industry, from transport to attractions, from hotels to conferences.

What is important for tourism stakeholders to understand is that it is significantly less expensive to manage a risk prior to the event than to deal with a crisis after it has occurred.


The concept of a legal duty is a device that law courts (in South Africa specifically) use to determine whether or not it is reasonable to impose liability. A tour operator has a duty to conform to reasonable standards of care. The test of ascertaining the existence of a duty of care in any particular case is the ‘foresight of a reasonable person’. This means that one owes a duty of care to persons to whom harm may be reasonably foreseeable.

In this regard the following questions must be asked:

  • Would a reasonable person, in the position of the defendant, have foreseen the possibility of his or her conduct injuring another; and
  • Would a reasonable person have taken steps to guard against this danger?
  • If so, did the defendant take the steps in question? If not, the defendant would probably be considered negligent.

In the tourism industry, most claims that give rise to liability are personal injury claims. It is also possible for a liability to arise under circumstances where no first aid is available or no proper evacuation plan is in existence.


A personal injury claim can range from between 5 000 ZAR for a minor whiplash injury to several million for one that results in a victim becoming a quadriplegic.

Bearing in mind that the tourism industry attracts high net worth individuals, personal injury claims have the potential to be substantial.

It is not uncommon for an injury claim to far exceed the operator’s insurance cover limits, which can ultimately lead to the relevant employee of the tour operator being declared insolvent and his or her employer (the tour operator company) being liquidated.

Case Study: While on a game drive at a private nature reserve in Namibia, the driver lost control of the vehicle, which subsequently rolled. One passenger sustained life-changing injuries while two others were seriously injured. These three guests sued the driver and the safari lodge as the owner of the vehicle. The guest with life-changing injuries was awarded a settlement of 80 million NAD and the two other guests were awarded 2.9 million NAD and 3.5 million ZAR respectively. Legal fees incurred in defending the case amounted to 10 million NAD, with a combined claim value of 96.4 million NAD.


Compiling a detailed list of all potential hazards within your tourism service that could give rise to potential public liability risks/incidents would be the first step.

After carefully implementing procedures and practical measures to minimise each hazard, one should then attempt to quantify, in financial terms, those risks that are unavoidable in order to decide on which would be sustainable using internal resources and which risk exposures would need to be insured.


Insurance is a means of transferring risk. In other words, it is a means of covering those risks that are sufficiently large in financial terms that if they occurred, the consequences could cripple your business. Insurance is therefore undertaken not for profit, but to place you in the same financial position as you were immediately prior to the loss.

The objective should be to compile and manage a risk portfolio with minimal exposure, thus ensuring that insurance premiums paid over a period of time accumulate to your benefit by virtue of incentives (no-claim bonuses) being accumulated on an annual basis. Thus a much higher level of exposure and indemnity limit is obtainable at vastly reduced premiums when compared to premiums required for the same level of cover.


Basically there are 5 kinds of insurance that really apply to the tourism industry:

  1. Financial Guarantee (Insurance Bond)
  2. Liability Insurance
  3. Vehicle / Property Insurance
  4. Travel Insurance / Medical Rescue
  5. Other Business Insurance (Buy & Sell, Key Person, Provident Fund)

1. Financial Guarantee

A financial guarantee, (also referred to as a contingency policy or indemnity bond) is a non-cancellable insurance policy that is created to offset losses arising from specific financial transactions. It is common practice for tourism service providers to ask their clients for upfront deposits to secure travel or accommodation bookings.

A financial guarantee protects the tourists’ deposit in the event of the insured service providers’ involuntary liquidation. It is important to note that this type of insurance cover will not respond to claims for the reimbursement of deposits where the insured entity has voluntarily gone out of business.

TIP: SATSA Bonded – SATSA has a contingency policy in place to cover their members at specified indemnity limits. Join SATSA to obtain this insurance cover at http://www.satsa.com.

Read more in this series:

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