Having successfully landed management of the Government’s proposed industry-funded compensation scheme of last resort, the Australian Financial Complaints Authority (AFCA) is now calling for professional indemnity (PI) insurance customers to also be able to use it.

AFCA flagged the suggestion in a submission to a Treasury discussion paper on the scheme, outlining its broad support for the compensation program that the Government wants ready by December.

“PI covers business risk and is not a consumer compensation mechanism,” AFCA says in the submission.

“Notwithstanding any need for further PI reform in relation to how firms meet their legal obligation to have adequate compensation arrangements in place, there is a need for a [compensation scheme of last resort] to cover loss where PI will not respond.

“These circumstances include fraud, amounts above PI limits and other situations where PI does not provide coverage or is not available.”

AFCA also supports the “broad coverage approach” outlined in the discussion paper.

It says the funding arrangement for the scheme should reflect risk and the business activity of the financial firms.

“This is an important factor that should be included in the [compensation scheme’s] funding model and levy calculations,” the submission says.

Additionally, the scheme’s levy calculations must be determined based on information for industry sectors or class rather than individual firms.

AFCA says the scheme should have a minimum capital base of $10-15 million, with any additional capital to be determined through regular actuarial modelling of claims.