The Federal Government’s $127 million reform package to strengthen the Australian Securities and Investments Commission (ASIC) has been widely welcomed.

And rightly so. Recent financial scandals have demonstrated that the nation needs properly resourced “tough cops on the beat”, as Treasurer Scott Morrison puts it.

But the general insurance industry is far more circumspect about what happens next – specifically when ASIC moves to a full industry funding, or user-pays, model in the second half of next year.

The big fear is that general insurers and brokers will end up subsidising other, much more troubled, sectors.

National Insurance Brokers Association (NIBA) CEO Dallas Booth tells insuranceNEWS.com.au that when the industry funding model was put forward last year “we expressed some reservations”.

Following Mr Morrison’s announcement last week that the model will proceed, Mr Booth sought urgent assurances that there will be further consultations on how it works.

“We have been told a number of ideas have been put to the Government and they are being looked at,” he says. “But we have been given strong assurances there will be further detailed consultation, and that will include NIBA.”

Mr Booth believes industries generating “greater levels of regulatory activity” should contribute more.

Simply put, general insurance brokers should not have to pay for others’ mistakes.

“The original model looked to us as though it treated all financial advisers the same way,” he says. “But there is clearly a huge difference between insurance brokers and financial planning and investment advisers.”

Mr Booth says brokers appreciate the importance of a properly resourced regulator – using the recent collapse of Perth-based authorised representative group Winley as an example of where things could have been better handled.

“Brokers are overwhelmingly putting great effort and expense into meeting regulatory requirements, and they are keen for ASIC to be funded and resourced, and operating in an effective way,” he says.

“We have had a recent experience with the Winley situation, and it worries us when we hear rumours that there were warnings that should have been heeded [by ASIC].

“We don’t have all the facts at this stage, but it would be disappointing if that were the case.”

The Insurance Council of Australia (ICA), although welcoming ASIC’s resource boost, has similar concerns about the finer details of the user-pays model.

“The general insurance sector poses lower systemic risks relative to other sectors, and this should be reflected in the volume of any levy for general insurers,” CEO Rob Whelan says.

“ICA looks forward to the opportunity to consult with the Government as it seeks to design and refine the funding model.”

Mr Whelan points out ICA members providing general insurance are already subject to the industry’s self-regulation regime, through the General Insurance Code of Practice.

“The code commits insurers to mandatory standards of service that are above and beyond their statutory obligations, and enhances the rights of consumers,” he says.

The $127 million funding boost (with $121 million provided by the banks) will see $61.1 million invested in enhancing ASIC’s data analytics and surveillance capabilities.

An additional $9.2 million will be made available to ASIC and Treasury to ensure they can implement appropriate law and regulatory reform.

About $57 million will be provided for increased surveillance and enforcement in financial advice, responsible lending, life insurance and breach reporting.

Consumer groups are broadly supportive of the investment – but also draw attention to its limitations.

Choice and the Consumer Action Law Centre have released a joint statement noting that in 2014/15 ASIC’s budget was reduced by $120 million over four years.

“Keep in mind, this funding announcement only partially restores the cuts ASIC has faced in the past few years,” Choice CEO Alan Kirkland says.

The Financial Rights Legal Centre has welcomed the funding, but warns it will not fix the “multitude of problems” financial services consumers face.

“It won’t make unfair terms laws apply to insurance; it won’t ensure insurance policies are suitable for the needs of customers; it won’t improve claims handling in insurance… and it won’t address cultures that are technically legal but ethically repugnant,” Principal Solicitor Katherine Lane says.

A stronger, more effective ASIC should be welcomed, and it is hard to argue with the Government’s contention that those being regulated, not the Australian public, should pay for it. 

However, the general insurance industry is also right to fire an early shot across the bows.

Those that have created the lion’s share of the problems should pay the lion’s share of the costs.