State and territory government requirements to approve lawyers’ professional indemnity insurance should be removed, according to the Productivity Commission.

“All insurers wishing to offer professional indemnity insurance products should instead be approved by the Australian Prudential Regulation Authority (APRA),” it says in a draft report on access to justice.

The commission says arrangements in which state law societies negotiate cover with insurers lead to unnecessary duplication and extra costs, when many of the insurers are already regulated by APRA.

The report also recommends that litigation funders be licensed as providers of financial products and be monitored by the Australian Securities and Investments Commission, to protect consumers.

Litigation funding is usually for cases of insolvency, large commercial claims and class actions, in which claimants seek compensation from insurance.

The report says both opponents and supporters of litigation funding agree it increases litigation.

Supporters say it levels the playing field for claimants against defendants with more resources, while opponents say funding generates frivolous litigation.

The commission says if funders have to hold Australian financial services licences they will have to act fairly and honestly, have arrangements to deal with conflicts of interest and have adequate resources and risk management systems.

The report also recommends removal of some restrictions on how lawyers can charge.

It says lawyers should be able to negotiate a share of damages recovered in most civil cases. Damages-based billing is currently banned across Australia.