The Insurance Council of Australia has called for targeted structural reform of the Compensation Scheme of Last Resort. It warned that funding changes alone will not create the sustainable scheme consumers and industry need.
In its submission to Treasury’s CSLR sustainability options paper, the Insurance Council said reforms must address the cost drivers behind claims. It argued the government should avoid simply finding new ways to fund rising scheme costs.
The CSLR operator has projected 2026-27 costs of more than $137 mn. About $127 mn of that is expected to fall on financial advice.
That figure sits well above the annual cap on what any single sector can be charged. Treasury’s options paper proposes widening levies across the broader financial services industry.
The Insurance Council said general insurance should remain outside the CSLR. It argued general insurers are not connected to the issues driving complaints under the scheme.
The group also said consumers cannot access the CSLR for general insurance complaints. In its view, policyholders should not bear the cost of a special levy tied to losses in other parts of financial services.
The submission recommends limiting CSLR-eligible compensation to actual capital loss. It said removing hypothetical loss scenarios from calculations would reduce disputes and support scheme sustainability.
The Insurance Council set out four principles for reform. They include preserving the CSLR as a true last-resort scheme and matching funding responsibility to the source of misconduct.
The group also called for avoiding cross-subsidisation across unrelated sub-sectors. It said structural reforms should come before broader funding levies if government wants to reduce the scale of claims.
Insurance Council Deputy CEO Kylie Macfarlane said the CSLR protects consumers harmed by financial misconduct. She said sustainability depends on addressing the conduct that drives claims, rather than relying on repeated levies.
Macfarlane said the fairest approach is for the sub-sector responsible for misconduct to fund compensation. She also said reforms should make sure firms can meet obligations before claims reach the last-resort scheme.
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.
Kylie Macfarlane, Insurance Council Deputy CEO
She said general insurance customers cannot access the CSLR. For that reason, general insurers should not subsidise losses from other financial services sectors.
The Insurance Council said it welcomes Treasury’s focus on CSLR sustainability. It said it will continue working with Treasury on reforms that protect consumers and keep the scheme viable over the long term.
