Travel agencies legitimately established in mainland should buy compulsory travel agency liability insurance. This is one article in draft of the Administrative Measures for Liability Insurance of Travel Agencies (Draft for Comment) promulgated by National Tourism Administration of PRC and China Insurance Regulatory Commission for public comments.

According to the draft regulation, the compulsory travel agency liability insurance should cover the compensation liability incurred by the travel agency during the trip because of the death and injury of the clients and their property damages. It should also cover travel agency’s liability to the people they employed when they are injured or their property is damaged. The insurance should cover liability caused by travel agency’s negligence or fault; by accidents and based on what the People’s Court or arbitration institution held on the judgment.

It is said that coverage of policy should be settled through negotiation between travel agencies and insurance companies, based on the travel agencies’ business scope, risk management capacity, circumstance of local economic and social development, and the needs of the agencies. However, the compensation for the casualty and death of the insured should not be lower than RMB 200,000 per person.

The premium for compulsory liability insurance of travel agencies should be set by the market, and should match the risk of the management of travel agency. The insurance term should be one year. Travel agency should renew the contract prior to the expiration date of the policy. Otherwise, the administrative department on travel supervision or its authorized local offices will have the right to impose penalty.

Compulsory liability insurance of travel agencies is a vehicle to allocate risks: on one side, it can assure that clients can be compensated for the cost they spend for their injury during the trip. One the other side, travel agency can be shield from excessive compensation which they feel hard to afford. In practice, however, problems still exist. First, premium rate based on the market may have its own disadvantage. For example, different insurance companies may employ their own rates for this same product. Secondly, as to the rate, there are several levels, most of the travel agencies choose the cheaper ones. This is due to the unbalance of the economic capabilities different travel agencies have. Some small travel agencies find it a burden to afford too much.