Ontario Comp. Fund should be co-funded by consumers, CATO says

The Canadian Association of Tour Operators (CATO) says the Travel Industry Council of Ontario’s (TICO’s) Compensation Fund, which is currently under review, should be “at minimum” co-funded by consumers. 

And that’s “natural personals” and not corporations.

In a release on Thursday (Jan. 19), CATO members issued a joint statement on the matter, arguing that consumer contribution is the only means to grow the Compensation Fund sufficiently to account for “current realities and to ensure consumers are fully protected, without any caps, in the event of a registrant failure.”

TICO is currently in a stage of transformation as it commits to an end-to-end review of its funding framework, services and Compensation Fund.

The Optimus SBR study was announced last September with a goal of examining TICO’s framework and Compensation Fund, including feedback from a broad range of stakeholders.

READ MORE: TICO to reinstate fees in 2023, launches review of funding model & Comp. Fund

Last week, TICO issued an update on the review, stating that feedback from stakeholders, associations, registrants and consumers has been collected and that recommendations will be presented to management and its Board of Directors this spring.

Richard Smart, TICO’s president and CEO, has previously indicated that all options are on the table, and yesterday, CATO said a consumer contribution is the “surest way” to heighten awareness of the Fund’s consumer protection and the importance of booking with a TICO registrant.

“Enough is enough"

In an actuarial review five years ago, commissioned by TICO and performed by Deloitte, it was determined the target Fund size should be between $50 – 60 million, CATO says.

“However, the review noted that even a Fund this size still required the retention of consumer and per event caps on claims, as well as not accounting for any large registrant failures or catastrophic losses,” the association said. “The current Fund is roughly half the amount of the minimum target Fund size suggested by Deloitte back in 2018.”

“Not only is the size of the Fund wholly inadequate, consumers should not be victims of the imposed caps on claims.”

READ MORE: What’s happening with TICO’s funding review? Here’s what we know

The caps, set decades ago, were “never indexed and the rapid rate of inflation exposes consumers to ever increasing risk,” CATO says.

Further hampering any claims by consumers is that the Fund is restricted to being the payer of last resort.

“Not only does this subject consumers to an exhausting claims process prior to ever making a

legitimate claim against the Fund, such subrogation of responsibilities exposes registrants to higher costs to banks and other payment processors as well as having to pay into the Fund.”

This hardly creates a competitive landscape for tour operators and other travel businesses in Ontario, CATO members said.

Currently, funding of the Compensation Fund is through each Registrant’s annual Compensation Fund Remittance (Form 1) filing.

In addition to this, each Registrant is required to pay an annual registration/renewal fee of between $300 - $1,800 for each Head Office (in accordance to sales volume) and $300 for each Branch Office.

TICO also draws from the Fund for certain operating expenses related to the Fund, thus depleting the fund and further reducing the extent to which consumers are protected by the Fund, CATO pointed out.

“Though TICO has engaged a consultant to complete a comprehensive review of all fees, with expected recommendations later this year, such engagements in the past have produced little if any results,” CATO said.

“Enough is enough. Consumers and registrants deserve a consumer protection fund commensurate to consumer risk.”

“This can only be achieved through a funding model that includes a consumer contribution as well as minimizing any caps and gaps that expose consumers to losses.”

“The current fund is wholly inadequate and the status quo is simply unacceptable.”

What's next?

This summer and fall, TICO will a conduct comprehensive consultation/fee review with registrants and stakeholders on its new funding framework.

By fall, final recommendations will be provided to the Minister of Public and Business Service Delivery.

By late fall, TICO will then announce next steps regarding the framework and timing/transition for a new, modernized funding framework.

Registrant fees, notably, will return on April 1, 2023, reverting to the structure that was in place prior to the pandemic until a new framework is announced.

“Not because that's the preferred model we would like to have, but quite the contrary, we think the whole revenue/fee model needs to change,” Smart told travel trade media at a press conference last September.

One reason TICO is reinstating fees, beyond the fact that provincial funding is winding down, is that the market is seeing pent-up demand, which is translating into bookings and signalling a recovery.

The bottom line?

“We've got to find a way of getting back to a self-funded model moving forward,” Smart said last fall, noting that “all options are on the table,” including a possible consumer pay model.

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