Australia’s Insurance Council Calls for Structural Reform of Compensation Scheme of Last Resort

The Insurance Council of Australia called for major structural reforms to the Compensation Scheme of Last Resort, warning that the system faces mounting financial pressure and requires redesign to remain sustainable. The appeal was made in response to a consultation by the Australian Treasury examining the future of compensation frameworks linked to professional indemnity insurance and financial dispute resolution.

The CSLR was established to provide compensation for consumers harmed by financial misconduct when other recovery avenues have been exhausted, funded through levies on financial services providers.

Industry representatives cautioned that proposals to expand professional indemnity insurance coverage to include areas such as fraud or systemic failure would shift financial risk without addressing the scheme’s structural weaknesses.

They warned that such changes could significantly raise insurance costs while failing to secure the long-term stability of the compensation system.

The reform proposal emphasises the need to address underlying drivers of rising claims, including stronger regulatory oversight of high-risk financial products and improved targeting of compensation to individuals who have suffered genuine capital losses. Industry stakeholders also argue that existing coverage limits no longer reflect current economic realities and should be reviewed to align with evolving financial risks and claim volumes.

The call for reform highlights broader concerns about maintaining financially sustainable consumer protection mechanisms while preserving affordability across the financial services sector. Policymakers are expected to evaluate reform options as part of ongoing efforts to strengthen the resilience and effectiveness of Australia’s compensation framework in the face of growing systemic pressures.

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