Builders, smash repairers and other suppliers may withdraw their services if claims handling regulatory reforms are applied too broadly, the Insurance Council of Australia (ICA) warns.

A Treasury consultation paper proposes removing claims handling exclusions from the definition of financial service, which would allow the Australian Securities and Investments Commission to have stronger oversight.

ICA supports the plan overall, but says the proposed claims handling definition is too wide and fails to take into account the range of parties that may be caught up in extra training, administration and supervision.

Many suppliers are small businesses that could withdraw their services if they must meet the obligations, leading to less competition, increased costs and premium impacts without any real benefit for consumers, ICA says in a submission.

The issue would be compounded in regional areas and after catastrophes, when there are already significant logistical and practical difficulties in handling and settling claims.

“If suppliers withdraw their services in these circumstances, insurers may be forced to cash settle and transfer the repair risk to the consumer,” the submission says.

ICA says the exemption for advice should remain, allowing discussions to be had with clients about claims, and suggests a 24-month transition period for reforms.

The Financial Rights Legal Centre rejects concerns abut increased training requirements and says adjustments can be made to ensure claims managers are trained to the extent that their roles involve any personal or general advice.

“This is not an insurmountable challenge and the threat of ‘regulatory burden’ should not be used as a red herring to prevent reform and improved standards,” it says.

It also opposes a Treasury option that would limit the advice regulatory impact for some documents used in the process.

“If the documents contain elements of general or personal advice, which they do, they should be deemed as such and regulated,” it says.

“Financial Rights does not wish to see the continuation of exemptions and loopholes.”