Ministers are developing plans for a statutory compensation scheme for Thomas Cook customers who face losing out on injury compensation claims because of the company's collapse.
Business Secretary Andrea Leadsom said the official receiver has alerted the Government to an "important outstanding matter" and she pledged to take action to address it.
Making a statement to the Commons, Mrs Leadsom said: "Thomas Cook only took out insurance cover for the very largest personal injury claims.
"For agreed claims below this figure up to a high-aggregate amount, they decided to self-insure through a provision in their accounts.
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"As Thomas Cook has entered into liquidation without ensuring any protection for pending claims the vast majority of claimants who are not covered by the insurance, including customers who have suffered very serious injuries and loss of life, will be treated as unsecured creditors.
"This means it is very uncertain whether they will receive any of the compensation they would have ordinarily received against their claims."
Mrs Leadsom added: "This is a potentially unacceptable prospect for some Thomas Cook customers who face significant financial hardship through no fault of their own where Thomas Cook should have rightly provided support.
"This is an extraordinary situation which should never have arisen. While the Government cannot and will not step into the shoes of Thomas Cook, we do intend to develop proposals for a statutory compensation scheme."
Mrs Leadsom said the next government would bring forward legislation to make sure the scheme could operate after an election.
For Labour, shadow business minister Bill Esterson said only "proper reforms" will ensure that "catastrophic failures of this type do not happen again".
Mr Esterson said: "Why oh why did Thomas Cook have to close first?
"And why wasn't the opportunity given to the shops and online services given to the airline, because the intervention that would have ensured such retention of those viable parts of the business would have been a major step in addressing the serious weaknesses that the Secretary of State has identified in her statement today.
"Auditing conflicts of interest have been repeatedly identified at Carillion, at BHS, in the banks, and now at Thomas Cook - has she read the excellent report of the BEIS select committee, and what is her response to their recommendations including their calls for a new regulator, and for the audit profession to be proactive and not reactive?
"The more evidence which emerges about the Thomas Cook collapse, the more it appears that the case was there to be made for intervention - if they didn't intervene in Thomas Cook, exactly when would this Government intervene?
"And if (Mrs Leadsom) wants to avoid hardship for those covered by insurance, she needs to change her approach and her attitude to intervention.
"The Government has failed Thomas Cook. They sat back and let it fold, and only proper reforms will make sure that catastrophic failures of this type do not happen again."
Mrs Leadsom said it was "very sad" that Thomas Cook went bust, but it is "not right that the Government must bail out every business" as businesses need to "stand on their own two feet".
Responding to a comment from a member of the Labour frontbench on who the auditors of Thomas Cook are, Ms Leadsom replied: "It is EY, and they will be investigated by the official receiver."
She added: "I will be bringing forward fundamental changes to audit. I expect that to be in the first quarter of next year.
"Any future government will wish to resolve this, to ensure this can't happen again, and BEIS officials will be working over the next few weeks to bring forward proposals on how to ensure that this cannot be repeated.
"I call on all similar travel and tour operators to make sure that this is covered by them and that they haven't got a similar sort of arrangement to the one that Thomas Cook had."