The National Insurance Brokers Association (NIBA) has reiterated its position on the Compensation Scheme of Last Resort (CSLR), advocating for a limited scope in its submission to Treasury’s post-implementation review.
Representing the insurance broking industry, NIBA has expressed support for consumer protection measures but warned against unnecessary regulatory burdens on businesses that do not contribute to unpaid compensation claims.
The CSLR was introduced to provide redress for consumers when financial firms fail to meet compensation obligations.
In January 2025, the Albanese Government directed Treasury to conduct a review of the CSLR to assess its financial sustainability and long-term impact on both consumers and industry stakeholders.
The review aims to ensure that the scheme continues to provide a safety net for victims of financial misconduct while maintaining a sustainable funding model.
The government has also framed this review within broader efforts to stabilise the financial advice sector, where adviser numbers have declined from 28,000 in 2019 to fewer than 16,000 in early 2025.
In its submission, NIBA argued that general insurance intermediaries should remain excluded, stating that there is no evidence linking brokers to unpaid determinations at a level that would justify inclusion. The association cautioned that expanding the scheme to insurance brokers would increase costs for businesses and policyholders without offering additional consumer benefits.
NIBA also outlined recommendations to strengthen the CSLR’s long-term viability. Among them was a call for stronger enforcement of the scheme’s subrogation rights, which allow it to seek recovery from firms that fail to meet compensation obligations.
The association pointed out that there is currently little transparency on whether the scheme has pursued such actions, and urged more rigorous enforcement to ensure financial accountability rests with firms responsible for unpaid claims rather than compliant businesses.
Additionally, it addressed concerns about professional indemnity (PI) insurance compliance among Australian Financial Services (AFS) licensees. While PI insurance is a requirement for AFS licensees to cover compensation from Australian Financial Complaints Authority (AFCA) determinations, gaps in compliance have persisted.
NIBA recommended that the Australian Securities and Investments Commission (ASIC) take a more proactive role in ensuring that firms meet these obligations, arguing that this would enhance consumer protections while preventing unnecessary financial pressure on firms adhering to the rules.
The association affirmed its support for the CSLR’s role in consumer protection but urged policymakers to ensure any modifications to the scheme remain proportional and based on industry data. It calls for policies that preserve the integrity of financial services while minimising unintended cost increases for businesses and consumers.
The CSLR recently released its initial levy estimate for the 2025-26 financial year, projecting total industry contributions of $77.98 million.
The funding will be allocated to processing approximately 1,800 claims, including 491 claims tied to the FY26 levy. This represents a significant increase in claim volume compared to the previous financial year.
Of the total estimate, $70.11 million is allocated to financial advice, $2.80 million to credit provision services, $2.72 million to credit intermediaries, and $2.34 million to the securities dealing sector.
CSLR chief executive David Berry stated that the estimates align with the scheme’s legislative framework and were developed with input from independent actuaries.
“In line with our administrative function, we have, with the assistance of external actuaries, calculated the initial levy estimate for FY26. As previously foreshadowed in October 2024, the estimate exceeds the $20 million sub-sector cap for personal advice,” he said.
The main drivers of expected claims include Dixon Advisory & Superannuation Services and United Global Capital.
ASIC is authorised to levy up to $20 million at the sub-sector level. Any funding required beyond this amount will require a special levy, with a formal notification to be submitted to the Minister for Financial Services early in the financial year.
A revised levy estimate will be completed, and any special levy will be subject to parliamentary approval.
