The Australian Consumers' Association (ACA) has questioned the purpose of the Federal Government’s report on financial system guarantees following the HIH Royal Commission recommendation of an exclusive scheme for general insurance.

CEO Peter Kell said the report, produced by Professor Kevin Davis as part of the Government’s response to the royal commission report, outlines a single scheme covering banks, credit unions, building societies, life insurers and general insurers.

“Frankly that boggles the mind,” Mr Kell said. “This was about general insurance and the process of mixing all of these sectors together in one pot is likely to serve as a distraction.”

He said the proposal ran counter to royal commissioner Justice Neville Owen’s recommendation and it could mean that the issue goes nowhere.

Mr Kell said the HIH Royal Commission extensively covered the possibility of a policyholder protection scheme. Recommendation 61 says the Federal Government should introduce a scheme to support policyholders of insurance companies in the event of corporate failure.

He said the Government has overlooked another comment in the report. “Justice Owen stated ‘implementation of this recommendation should not await the decision whether to establish a scheme that covers other parts of the financial services sector’.”

Mr Kell added that the consultation process had been poorly publicised and he expected a more rigorous examination of such an important matter.

The Insurance Council of Australia (ICA) made its final submission to the report last week, proposing a scheme that is post-event funded and – similar to the ACA view – specific to general insurance. The submission states: “We do not believe there is a need for protection across all financial services.”

ICA also prefers a scheme that is limited, controlled by an independent industry body (but not ICA), covers policyholders under state statutory schemes, and covers individuals and small businesses with turnover up to $1 million. It says all authorised insurers must be part of the scheme.

Submissions to the report on financial system guarantees are due next week.