The Insurance Council of Australia has called for a structural review of the Compensation of Last Resort Scheme (CSLR), warning that funding changes alone cannot make the scheme sustainable.
The ICA’s position, set out in a submission to the Treasury’s options paper on the sustainability of the CSLR, is that reforms should target underlying cost drivers rather than focusing solely on new revenue mechanisms.
Operator CSLR has estimated projected costs for 2026-27 at more than A$137 million ($98 million), with financial advice accounting for about A$127 million of that total.
As the figure exceeds the annual limit on taxes applicable to any single sector, the options paper has proposed extending taxes to the entire financial services industry.
The ICA has argued that general insurance should remain outside the scope of the scheme, pointing out that general insurers have no connection to the complaints their costs generate.
The communication also points out that consumers cannot access the CSLR to file general insurance claims, meaning that any excise duty imposed on the sector would end up being passed on to policyholders.
The council further recommended limiting eligible compensation for CSLR to actual capital loss, holding that excluding hypothetical scenarios from loss calculations would reduce disputes and bolster the plan’s long-term viability.
Four principles underpin the ICA’s reform agenda: maintain the CSLR as a genuine plan of last resort; matching funding obligations with causality; prevent cross-subsidization between unconnected subsectors; and seek structural changes that reduce the volume and scale of claims.
Kylie Macfarlane, deputy chief executive of the Insurance Council of Australia, said: “The CSLR plays an important role in protecting consumers harmed by financial misconduct and keeping it sustainable means addressing conduct that leads to claims rather than relying on repeated taxation.
“The fairest approach is for the subsector responsible for the misconduct to fund compensation, backed by reforms that ensure companies can meet their obligations in the first place.”
“ICA Calls for Structural Changes to Compensation Plan” was originally created and published by Life Insurance International, a brand owned by GlobalData.
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