The industry has warned against using professional indemnity insurance to address funding pressures facing the Compensation Scheme of Last Resort.

PI cover is “not a consumer protection tool”, the Insurance Council of Australia says in a submission to a Treasury consultation. 

“To address the current financial problems facing the CSLR and ensure its long-term sustainability, significant reform of the scheme is urgently required.”

ICA says it is concerned the “current focus may be on expanding the role of PI insurance to cover losses to retail customers arising from high-risk investments, rather than focusing on tackling the underlying structural challenges of the CSLR and ways to prevent these large ... losses occurring in the future”.

CEO Andrew Hall says the industry wants a scheme that works for consumers.

“That means tackling the underlying causes of claims rather than shifting costs around the system,” he said. 

“Professional indemnity insurance is fundamentally the wrong instrument for the problem at hand.”

The ICA submission looks to explain how PI insurance operates, noting “inaccuracies” in a Treasury consultation paper.

“PI insurance is not designed to provide a source of general financial protection to third parties and consumers,” the submission says.

“Nor is it designed to act as a financial safety net for consumers that have suffered a financial loss. Furthermore, it is not the role or purpose of PI insurance to be a ‘first line of defence’ to fund consumer compensation and support the broader sustainability and purpose of the CSLR, as is suggested in the consultation paper.”

Financial Advice Association Australia says advisers’ PI insurance is designed to cover misconduct, not investment losses or product failure.

“[PI] cover to protect clients in the event of product failure should exist elsewhere in the financial services value chain,” the association says in its submission to Treasury. 

It says increasing the obligations for PI insurance will affect premiums and, at the extreme, could result in insurers stepping back from the market.

“The impact on [PI] product offerings and availability must be carefully considered.”