ARTA Canada President Bruce Bishins says the higher assessments Ontario travel agents will be paying into the Ontario Travel Industry Compensation Fund “defy explanation,” but Ontario registrar Michael Pepper responds that the explanation is perfectly clear and should be no surprise to retailers.
Bishins says ARTA “stood in awe” last week as TICO revealed plans to increase payments by Ontario travel companies into the Ontario Travel Industry Compensation Fund by an amount that will see payments rise 249% over current levels next year and rise again the following year to a level 336% higher than current rates.
Pepper, who is President & CEO of the Travel Industry Council of Ontario, doesn’t disagree with Bishins’ arithmetic and he’d like to see some context built around it.
“This was all planned five years ago,” says Pepper. “We were managing the fund so well that there was a surplus and we decided to lower assessments to put the fund down to $25 million. The fees were reduced five times over the years, now we need to raise them to maintain the level of the fund. It shouldn’t come as a surprise to anyone.”
In 1997, says Pepper, retailers paid $1.20/$1,000 of gross sales into the fund. Current rates are $0.05/$1,000. “We were deliberately losing money to reduce the fund. Yes, we’re putting the fees back up, but they will still be substantially lower than they were.”
Pepper also says TICO is continuing to examine the possibility of a new, consumer-pay model for the fund. “We’re hoping to move in that direction, hopefully in the short term.”
Annual operating expenses at TICO are around $4.2 million, including claims, salaries and benefits, administration, consumer awareness programs, industry initiatives and inspection and compliance costs. According to TICO’s 2010-2013 Business Plan, TICO will take in $2.4 million from assessments, new registrants, renewals and interest on the fund in the 2010/2011 fiscal year, which would mean nearly $2 million coming off the fund principal, which is now around $26 million.
Pepper says the increased assessments over the next couple of years will raise the inflow to match projected annual expenses, keeping the fund hovering around the $25 million level.
Here’s what the TICO assessment increases will mean for retail agency contributions over the next two years:
2010/2011 Assessments: $550,000
2011/2012 Assessments: $1,760,000
2012/2013 Assessments: $2,200,000
Bishins links the $2.2 million figure for 2012/2013 assessments to the amount of the TICO claim for repatriating Conquest Vacations passengers that was rejected as a ‘secured’ claim by the Conquest bankruptcy trustees.
“What makes Ontario travel agencies cringe is that TICO has refused to share actuarial reports which make recommendations as to fund levels, and the fact that TICO is trying to top-up a fund in advance of major failures, which would be limited to $5 million per event anyway,” says Bishins.
Pepper says it’s time for a new actuarial study on what is the optimum level for the fund. “Currently risk is based on historical data and didn’t include things like credit card processors holding back large amounts of money and the major consolidation that has taken place in the industry.”
He also says the $5 million maximum per event might be an outdated figure, considering the amount of consolidation in the industry.
This year’s TICO AGM will be held November 1st at the Toronto Congress Centre.
