Chris Pearce may no longer be responsible for the insurance industry, but the former Parliamentary Secretary to the Treasurer would be interested in the dramas taking place around the implementation of new insurance laws he once oversaw.

New regulations requiring Australian financial services licence holders to have "adequate" professional indemnity (PI) insurance will come into force in July.

Of course, "adequate" hinges on whether your job title reads "financial planner" or "insurance broker". For planners, the scheme is tied to the monetary limits of their external dispute resolution scheme; for insurance brokers not much will change under 20-year old compulsory PI laws in the Corporations Act.

Since ASIC released its regulatory guide to the changes in November, financial advisers have been sweating on July 1 as D-Day for the profession - with portents of doom the general response.

While the idea of mandated PI is arguably overdue - insurance brokers have been forced to hold PI insurance for more than 20 years - and reflects many of the industry's own conventions, the new system could have serious flaws.

Firstly, opponents say the Government's intentions, while noble, are misdirected; it is financial advisers, not consumers, who will be safeguarded under mandatory PI. The difference is significant, and ironic, given the collapse of Westpoint prompted calls for greater protection for consumers.

The former government used the demise of Westpoint as the trigger for mandatory PI cover, but the corporate regulator freely admits PI insurance cannot protect investors against a corporate demise. Secondly, PI cover is being mandated by the Federal Government, but provided by the private sector. Only a handful of PI insurers cover the middle market - only four have national reach - and it is these companies, not the Government, which will ultimately determine the scope, price and availability of cover.

Insurers are already warning the changes will place additional pressure on a stressed market, possibly compelling some underwriters to pull up stumps.

There is also the issue of monetary limits. The Financial Planning Association argues the 50% increase in monetary limits by the Financial Industry Complaints Service (FICS) to $150,000 will harm smaller planners, who will either go broke from higher PI insurance or be coerced reluctantly into the embrace of larger, well-capitalised companies, which are given exemptions from PI.

FICS' increase may appear to grant disgruntled investors wider scope to access free arbitration, but the bar is unlikely to be high enough in the event of another failure on the scale of the Westpoint disaster.