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I am afraid it is AITO who are wrong. If the customer cancels because of FCO advice that it is unsafe to travel to a country, then by definition that includes all the resorts within that country. If the FCO advised against travel only to a specific part of a country, then only travelers booked to go to that specific region have rights to cancel without penalty.
This unseemly desire to shift everything onto insurers will come back and bite the industry. There will be a huge swell of public opinion to make the regs even more onerous for operators if this continues.
What do you expect from a trade association, it's all about their members.