All Australian insurance policyholders will pay a 1% levy on their premiums to assist those affected by the HIH Insurance Group's provisional liquidation.
The levy will be combined with a reduced tax burden on insurance policies. Tax on insurance raises AUS$3bn (£1.1bn) a year.
The States and Territory governments will cover any shortfalls in workers' compensation and compulsory third-party schemes.
The plan, drafted by the Federal Government and the Insurance Council of Australia (ICA), will exclude claimants already covered by arrangements with Allianz, QBE and NRMA Insurance.
ICA president Raymond Jones said the general insurance industry believed action had to be taken to address the hardship of HIH policyholders.
“Because of the size of HIH and the importance of insurance in underpinning the economy, we believe this is a community problem that has to be dealt with by the community,” Jones said.
The levy will be administered through either a federal corporation or a corporation established and managed by the insurers.