Report: new approach needed for TICO's Comp Fund

An increase to $50 million and the possibility of consumer contributions are among the recommendations in a new actuary study regarding the state of the Travel Industry Council of Ontario’s Compensation Fund.

The report by Deloitte was conducted over a 12-week period earlier this year and found that “the current funding mechanism and size of losses to the TICO Fund is resulting in a year-over-year loss.

“If the current environment were to continue (claims, funding, investment returns, Registrant numbers), then TICO’s Fund would not be large enough to continue supporting Ontario consumers in 10-15 years,” the report stated.

In order to avoid such a scenario, the report recommended that TICO maintain a Fund of $50 million incorporating both a Consumer Protection Fee (with the report suggesting that a fee of $1 per $1,000 would likely be accepted by travellers) and reinsurance protection to bolster contributions made to the fund by TICO registrants, who currently contribute 25 cents for every $1,000 they sell.

As of 2016, the Fund currently sits at just over $20 million.

TICO President & CEO Richard Smart told PAX that the “layered approach” suggested in the report has been adopted by several jurisdictions in Europe, and would allow TICO to cover consumers in a “more cost-effective way,” by only having to cover the cost of reinsurance premiums once the fund reached its target level of $50 million.

“They (Deloitte) believe that the consumer pay model has merit by sharing the burden across a larger number of members in the marketplace,” he said, adding that TICO has spoken to various reinsurers about the possibility of working together. “The benefit to TICO and the industry is that it doesn’t require us to build a fund of hundreds of millions of dollars like Quebec has and they are struggling with how to deal with it. We’d rather have a reasonable level of fund, cap it and use a more cost-effective way of dealing with losses.”

Smart said that while consumer pay into the Fund was not incorporated into the current government bill revising various aspects of the Travel Industry Act (currently before Queen’s Park), the Ontario government “sees the merit” in such a model, with a consumer education campaign on the benefits of a healthy Compensation Fund being a possible next step.

“There’s a lot of education and awareness that we need to work on,” Smart said. “Six months ago, nobody would have thought that Monarch in the UK was going to fail; this concept of ‘too big to fail’ has been disproven long ago and we need to be prepared but in a cost-effective way.”

The full report can be found here.