The Insurance Council of Australia has urged a structural overhaul of the Compensation Scheme of Last Resort (CSLR), cautioning that funding changes alone cannot make the scheme sustainable.
The ICA’s position, set out in a submission to Treasury’s options paper on CSLR sustainability, is that reforms must target the underlying drivers of costs rather than focus solely on new revenue mechanisms.
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Projected costs for 2026-27 have been put at more than A$137m ($98m) by the CSLR operator, with financial advice accounting for roughly A$127m of that total.
As the figure surpasses the annual cap on levies applicable to any single sector, the options paper has proposed extending levies across the wider financial services industry.
The ICA has argued that general insurance should remain outside the scheme’s scope, noting that general insurers have no connection to the complaints generating its costs.
The submission also points out that consumers cannot access the CSLR for general insurance complaints, which means any special levy imposed on the sector would ultimately be passed on to policyholders.
The council further recommended capping CSLR-eligible compensation at actual capital loss, contending that excluding hypothetical scenarios from loss calculations would curtail disputes and bolster the scheme’s long-term viability.
Four principles underpin the ICA’s reform agenda: maintaining the CSLR as a genuine scheme of last resort; matching funding obligations to causation; preventing cross-subsidisation between unconnected sub-sectors; and pursuing structural changes that reduce the volume and scale of claims.
Insurance Council of Australia deputy CEO Kylie Macfarlane said: “The CSLR plays an important role in protecting consumers harmed by financial misconduct and keeping it sustainable means addressing the conduct that drives claims rather than relying on repeated levies.
“The fairest approach is for the sub-sector responsible for the misconduct to fund the compensation, supported by reforms that ensure firms can meet their obligations in the first place.”
