The Insurance Council of Australia (ICA) has pushed back against Treasury proposals that could extend Compensation Scheme of Last Resort (CSLR) levies to the general insurance sector, warning the move would unfairly burden policyholders.
In its submission to Treasury, the ICA said the CSLR was established as a “last resort” channel for victims of financial misconduct once avenues such as AFCA determinations are exhausted.
General insurance, the ICA noted, is not within the scheme’s scope, as insurers are already subject to prudential regulation and their customers benefit from the government’s Financial Claims Scheme.
“The Insurance Council submits that the general insurance sector should not be called upon to meet funding shortfalls,” the ICA said. “Given any funding contribution by general insurers will ultimately come from premiums paid by consumers for general insurance products, it is unfair for these consumers to be asked to fund a compensation scheme to which they have no access.”
The ICA also questioned the description of collapses in other subsectors as “black swan” events, saying that failures of unregulated financial firms are neither rare nor unpredictable.
“Far from being rare and unpredictable events, collapses of non-prudentially regulated financial services firms occur on an unfortunately regular basis,” it said.
The ICA reiterated its opposition to cross-subsidies that shift the cost of misconduct onto prudentially regulated firms.
It recommended that Treasury undertake a broader review of CSLR’s funding model to address sustainability issues, rather than relying on special levies on unrelated sectors.
Among its proposals, the ICA called for:
It also objected to suggestions that levies be imposed on larger institutions based on capacity to pay.
The submission pointed to the $241 million already contributed by major financial firms, including insurers, to clear AFCA’s historic backlog of cases.
“Levying large entities to pay valid claims against other subsectors subverts principles of accountability, regulatory certainty, transparency, fiscal responsibility, sectoral risk differentiation, sustainability, and equity,” the ICA said.
In addition to the CSLR submission, the ICA released commissioned research on the federal government’s expansion of the Home Guarantee Scheme (HGS).
Economic modelling by consultancy Lateral Economics suggested that the policy could push up national property prices by 3.5% to 6.6% in its first year, with some first-home-buyer markets seeing rises closer to 10%.
Price pressures would be strongest on homes near the program’s price caps, which extend up to $1.5 million in some cities.
The report indicated that while participants would save on lenders mortgage insurance (LMI), those gains could be outweighed by higher purchase prices.
A buyer of a $700,000 property could save up to $28,000 in forgone LMI, but might face additional costs of between $37,000 and $69,000.
