The Federal Government has warned the Financial Industry Complaints Service (FICS) not to raise the compensation cap too high to avoid a cost blow-out in professional indemnity insurance.
Parliamentary Secretary to the Treasurer Chris Pearce said FICS must consult extensively about plans to raise the monetary limit to ensure the limit chosen was supported by the greatest number of stakeholders.
“I would note the possible implications for any decision concerning limits created by caps on indemnity insurance imposed by the market and restrictions on professional liability,” Pearce told the annual FICS conference in Melbourne yesterday.
“Raising the compensation cap too high would have the flow-on effect of raising premiums. This move could also result in some insurers not covering EDR [external dispute resolution] determinations over the current limits.”
The maximum amount a consumer can receive in compensation for financial loss through FICS is $100,000. A decision to raise the limit has been postponed because industry groups have objected.
People who have invested more than $100,000 cannot resolve their dispute through the scheme, although FICS is considering scrapping this restriction as well.
Labor has pledged to raise the limit to $500,000 if it wins the federal election, saying the limit needed to be increased in the wake of the Westpoint collapse.
Pearce proposed merging some EDR schemes into a single body.
“In some cases this may be the best alternative to maximise efficiency and lower costs,” he said.
He has asked FICS chairman Peter Daly, who is also chairman of the Insurance Ombudsman Service, and Banking and Financial Services Ombudsman chairman Colin Neave to coordinate discussions about convergence.
