The Underwriting Agencies Council (UAC) says it has raised concerns about the proposed compensation scheme of last resort in a submission to Treasury.

UAC says underwriting agencies will be called on to contribute to the scheme if the government goes ahead with its planned costing structure and breadth of contributors as outlined in the Treasury proposal paper.

The peak body says the parameters of who is to pay for the scheme’s levy have been widened to ensure that sufficient funds are in place to ensure the program responds to any default by an Australian Financial Services (AFS) licence holder in satisfying an Australian Financial Complaints Authority determination as a consequence of insolvency.

“This is without evidence that a significant problem on unpaid compensation awards exists outside of the groups considered by the Ramsay Review,” UAC said in a statement today.

“UAC is concerned that the proposed methods of collection will impose significant administrative burdens upon the entire insurance industry, compliance costs will be greater than the funds collected and collection costs will significantly erode the benefit of the relatively small contributions that are proposed for third party intermediaries in the insurance industry.”

The scheme was originally recommended by the Ramsay Review in 2017 and later backed by the Hayne royal commission in 2019.

UAC says additional costs that flow from the scheme will need to be passed on to consumers, on top of government taxes and levies already collected by the insurance industry for various government bodies.

“Once again, affordability of insurance will be impacted,” UAC said. “UAC is advocating for a scheme that does not significantly add to existing administrative and compliance burdens and costs, collects the required funds effectively and efficiently at the lowest possible cost and is based on a contribution model that does not rely on cross-subsidisation across different categories of AFS holders.”

Brokers and other financial services peak bodies have also flagged concerns over the design of the scheme.

The National Insurance Brokers Association (NIBA) says the planned format of the scheme provides an incentive for dishonest firms to use the program to underwrite poor governance practices or unethical conduct.

And this means dishonest firms can continue “safe in the knowledge that the scheme will ‘pick up the tab’,” NIBA said on its website.

The proposed scheme will be funded by levies from relevant financial firms, the Treasury paper says.

Consultation closed on August 13. Click here for the Treasury paper.