The Australian Financial Complaints Authority (AFCA) says a product intervention order proposed for add-on insurance sold with motor vehicles should ensure access to the external disputes body and enforce more compulsory disclosures.

An AFCA submission on the Australian Securities and Investments Commission’s (ASIC) proposed order says the version released for feedback would benefit the community and improve standards, but additional protections need to be included.

CEO David Locke says all issuers of add-on products should be AFCA members, while intermediaries should also be part of AFCA if a member is not responsible for their conduct.

“Given the findings by ASIC on the low value that add-on products provide and the unprecedented circumstances due to the COVID-19 pandemic, it is essential to ensure all consumers entering these types of products have access to free and independent external dispute resolution to raise any issues about these products,” he said.

ASIC’s revised intervention order was released for feedback earlier this month after a consultation paper was first issued last year.

The order includes a deferred sales model to separate out the sale of the add-on product from the time when the motor vehicle is purchased.

AFCA notes salespeople are not permitted to contact consumers about the add-on product during the deferral period, but arrangements leave the door open for the consumers to be contacted later.

“We would support the inclusion of information about appropriate conduct after the initial deferral period to ensure consumer detriment is removed, not deferred,” it says. “Any contact should be initiated by the consumer.”

The submission says compulsory disclosures should also be expanded to include total premiums, significant features, the policy duration, commissions, information that the product is optional and not compulsory and the potential for duplicate cover.

It says the product claims ratio should be provided, with information to explain that it may be an indicator about the value of the policy, and it should be clear whether the add-on product is sold by other distributors.

AFCA’s submission says it is critical information allows consumers to understand the add-on product and the benefits it offers in specific circumstances.

“AFCA strongly welcomes and supports ASIC’s proposal to make a product intervention order by legislative instrument that provides critical protections to consumers in relation to the way the add-on products are sold,” Mr Locke said.

“ASIC’s intervention will have direct benefit to the community and will drive up standards across the industry.”

Changes in the revised intervention order compared to the previous version include a three-month transition period and clarifications and changes to wordings.

ASIC has long been considering reforms in the area following the release of its “Taking consumers for a ride” report in 2016. A deferred sales model was supported by the Hayne royal commission.