How do insurers calculate adjustments to cancellation charges?

Cancellation charges are penalty fees charged by airlines, hotels, and tour operators when a booking is cancelled. They typically increase on a sliding scale as departure approaches. For example, 30% of the trip cost if cancelled 8 weeks out, rising to 100% within 2 weeks. These are generally what a travel insurer is covering under a cancellation claim, after any refunds from the provider have been deducted.

Prompt notification to the provider is critical: if you delay notifying them, the insurer will typically limit the payout to the charges that would have applied at the point you should have informed the provider that you wouldn't be travelling or using their accommodation. Higher charges that accumulate because of the delay in informing them will not be covered.

Insurer definition

Insurers apply the principle that they will cover only charges that would have applied if the provider were notified of cancellation as soon as possible once the customer became aware that this would be required.

Financial Ombudsman Service (FOS) interpretation of cancellation charge calculations

Rulings of the FOS indicate that this principle is seen to be fair, but with an important caveat around the insurer's own responsibility to guide the policyholder.

In DRN-3607704, Mr and Mrs N paid the balance of their holiday and cancelled on the same day. The policy required trips to be cancelled at the earliest opportunity. The FOS found that the couple should have cancelled months earlier, when the need to cancel first became apparent, and that the insurer's liability was correctly limited to the deposit they would have lost at that earlier point. This confirms that insurers can limit what they pay where the policyholder delayed cancelling and incurred charges that could have been avoided.

However, DRN1017370 shows the other side of this principle. Mrs P contacted the insurer (ERV) when she needed to cancel but was not told to notify her travel provider straight away. The policy required immediate notification to the travel agent. Because Mrs P did not do this, the cancellation charges increased. But the FOS held that the insurer, having greater knowledge of its own terms and conditions, should have advised Mrs P to cancel the holiday immediately. The insurer could not then rely on the delay in notification to reduce the payout. The lesson: if you contact your insurer and they fail to tell you to cancel with the provider promptly, they may not be able to penalise you for the resulting higher charges.

How insurance policies typically phrase this

Insurers universally expect you to notify your travel provider as soon as you know you need to cancel, but they express this with varying degrees of directness. Some policies set it out as a named condition with clear consequences. For example, AXA (Coverwise) states explicitly that if you fail to notify the travel agent, tour operator, or provider as soon as you find out it is necessary to cancel, the amount payable will be limited to the cancellation charges that would have applied at that earlier point.

Other policies phrase the same principle as a cap on liability rather than a duty to act. Admiral, for instance, states that the claim amount will be limited to the costs that would have applied at the time you first became aware of the need to cancel.

Some insurers do not include a direct statement on this point at all. Instead, they rely on the general framework that only unrecoverable costs are covered, leaving customers to infer the consequence of delay. Check your own policy carefully: if there is no specific condition about notifying providers, the principle still applies through the general requirement to mitigate your losses.

Differences between insurers to look out for

The main area to watch for is how specific your policy is about timing. Most policies use open-ended language such as "as soon as you find out" or "at the time you first became aware." Oasis is notable for going further: it includes a specific guide of 7 days to contact your travel provider following a medical diagnosis that makes cancellation necessary. This is the only policy reviewed that imposes a day-count for notification.

Regardless of how your policy phrases it, the practical advice is the same: tell your travel provider as soon as you know you need to cancel. Even where your policy does not spell this out as a condition, the insurer will still expect you to have mitigated your losses, and the FOS supports this approach. The one exception, as DRN1017370 shows, is where the insurer itself fails to advise you to do so when you call them.

Notes on this guide:

• This is general guidance based on selection of representative UK travel insurance policy terms from leading insurers.
• This is a summary of common terms. Always read your specific Policy Wording and IPID document. This guide is for information only and does not constitute financial or legal advice.
• This document is based on a detailed, expert review of UK travel insurance policies from March 2026.
• Always read your specific policy documents and contact your insurer or the FOS directly if you have a dispute.