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Tour operators’ association Aito will suspend its guarantee of 100% financial protection from August 1 after an insurance company cancelled the cover of a former member who worked chiefly with schools.

An Association of Independent Tour Operators (Aito) spokeswomen said: “This primarily affects school ski trips.”

Insurance firm Amtrust Europe, formerly IGI Insurance, cancelled the failure cover of Devon-based tour operator Skiing Europe on July 1 arguing there had been a “material non-disclosure” by the company when applying for the insurance.

Aito said Amtrust Europe’s action “left many thousands of school children without the financial protection their schools and Aito believed they had”.

The association said the move called into question the validity of insurance-backed financial protection across the travel sector. It is now seeking guarantees from insurers that they will honour policies providing financial protection for 23 Aito members – about one in six of the membership.

“A lot of travel companies use insurance,” said the spokeswoman. “Does it mean no one can rely on insurance?”

Aito said it was acting after receiving legal advice confirming that Amtrust Europe had acted within the terms of the Package?Travel Regulations.

In a statement, the association said: “Aito, in common with other industry associations, has accepted tour operator failure insurance policies on the basis that [they are] an acceptable form of financial protection under the 1992 Package Travel Regulations.

“Aito believed until this case that insurance companies which issued tour operator failure insurance . . . would honour it.”

Association chairman Derek Moore said: “This throws into question the viability of many insurance policies currently in use in the travel industry. Aito calls on the government and industry to look closely at policy wordings so that such an unfortunate situation cannot occur in future.”

Skiing Europe joined Aito in June last year, but left in March. The company is still trading despite Aito reporting the tour operator contacted it in February, at the time of the school half-term holiday, to say the company was “having cash flow problems”.

Aito reports a subsequent meeting failed to provide reassurance. The association says it became aware of accommodation for school trips going unconfirmed and of coach firms left unpaid and refusing to pick up students, and tried to assist schools to rebook trips.

The association is asking schools that have booked trips with Skiing Europe to contact the association if they not al