The HIH Royal Commission findings were handed down more than five years ago, and finally the insurance industry is close to finding out what the Council of Financial Regulators has in mind for a financial claims compensation scheme.

The council, which is the co-ordinating body for Australia’s main financial regulatory agencies, is expected to unveil the finer points of the scheme “soon”.

Royal Commissioner Justice Neville Owen suggested a claims scheme should be accompanied by a package of wider reforms that included regulation of all insurance and insurance-like products, removal of overlaps between state and federal prudential regulation, and removal of several state taxes on insurance.

The industry hasn’t raced out to embrace a claims scheme. It’s concerned that it could be a costly impost on general insurers authorised by the Australian Prudential Regulation Authority and may encourage state and territory governments to continue their own risk protection regimes – similar to the NSW Insurance Protection Tax.

But it is also argued a policyholder protection scheme could remove the need for states and territories to have nominal defendant arrangements or pass the costs of those arrangements on to insurers through taxes.

Speaking at the Insurance Council of Australia's regulatory seminar last week, Federal Treasury Executive Director Markets Group Jim Murphy said the Government is still looking at the proposed scheme, details of which are expected to be released soon.

“There need to be formal arrangements for managing a collapse of an institution such as HIH,” he said.