Victorian cab drivers are being scammed by unregulated taxi clubs and are at risk of losing their homes, a report has found.

The report, based on the experiences of drivers helped by the Taxi Driver Legal Clinic from February to November last year, has recommended the state government introduce compulsory comprehensive insurance in the taxi industry.

In Victoria, most cab drivers do not have access to cover through reputable providers as they are seen as risky to insure.

They rely on taxi clubs that purport to offer a limited form of insurance but are largely unregulated.

Community lawyer and report author Lucie O'Brien said drivers, many of whom are recent arrivals to Australia, are told by taxi owners they have to pay a certain amount each week or shift for insurance through a taxi club.

"What they find is when they have an accident the taxi club ... will refuse to cover them for any damage to third party cars," Ms O'Brien said.

Cabbies are often told they have to pay excesses of about $1500 but find years later they are being sued by the insurance company of the other driver in the accident.

Ms O'Brien said one driver was recently sued for $40,000.

"Without a law that makes it compulsory to have proper insurance, as is the case in NSW and the ACT, this problem won't go away," she said.

"If they've got a house they are very much at risk of losing their house.

"They are often at risk of bankruptcy and you are talking about usually pretty recent migrants who don't understand the implications of bankruptcy."

In his draft report into the taxi industry, Professor Allan Fels recommended the government make it compulsory for taxi permit holders to have comprehensive insurance covering third party damage.

He is due to hand his final report to the government later this year.

AAP