Another report directly related to HIH recommendations – a study by Professor Kevin Davis into financial system guarantees – has been more positively received. The Davis report includes discussion on how to develop a policyholder protection scheme and will be open for public consultation before the Government decides which way to go.

The HIH Royal Commission recommended the Government support the introduction of an industry-funded policyholder protection scheme to cushion consumers against any future insurer collapse. While the Melbourne University finance professor made no official recommendations, he provided technical discussion on the costs and benefits of such a scheme.

The Insurance Council of Australia, which has been pushing for a policyholder protection scheme, says it looks forward to discussing the issue with Treasury.

“It was pleasing to see the report acknowledged the higher risks faced by consumers of insurance when compared to depositors,” Deputy CEO Dallas Booth said. “The… report notes that Australia’s strong prudential framework suggests we would have the capacity to implement a well-designed scheme to suit Australia’s circumstances.”

Treasurer Costello said in a statement: “The Government is particularly interested in receiving public input on the costs associated with such as system, bearing in mind that costs may outweigh benefits.”