Laws to defer add-on insurance sales could expose consumers to immediate financial risk in a number of scenarios including rental vehicle hiring, brokers have warned as the Government considers exemptions to the new rules set to take effect this year.

The National Insurance Brokers Association (NIBA) says cover for same-day transportation of livestock bought at sales is another problematic area, while a legislated exclusion for comprehensive car insurance should be extended to third party, fire and theft.

“There are a wide range of examples where the purchase of a product or service results in the immediate assumption of risk and it is entirely valid for that risk to be insured,” CEO Dallas Booth told insuranceNEWS.com.au today.

NIBA has lodged a submission to Treasury which is considering regulatory exemptions to the deferred sales model laws passed by Parliament in December.

The new regime, effective October 5, prohibits the sale of add-on insurance “for at least four clear days” after a consumer has entered into a commitment to acquire the principal product or service.

The Hayne royal commission proposed changes after focusing on products such as tyre and rim insurance purchased with motor vehicles. The inquiry examined high-pressure tactics and incentives that led to consumers buying products offering little value.

Mr Booth says in other areas add-on cover has been important in mitigating the potential for immediate loss and the Australian Securities and Investments Commission (ASIC) now has increased intervention powers to deal with issues.

The Consumer Action Law Centre, Financial Rights Legal Centre and WEstjustice say exemptions from the deferred sale rules should be restricted to the rarest of circumstances and where there is “extremely strong evidentiary justification”.

“These sales are often motivated by huge commission arrangements paid to retailers by insurers, leading to situations where retailers are incentivised to recommend poor value policies,” Consumer Action CEO Gerard Brody said.

The groups’ submission to Treasury notes that the Hayne royal commission broadly recommended that laws should be simplified and exemptions and loopholes minimised.

An add-on insurance product class being considered for an exemption should clearly offer the same or better value to consumers as standalone equivalents, and there needs to be a good reason why a four-day pause would be a major problem, according to the submission.

“If the average commission historically paid on a class of add-on insurance products is 20% or more, this should conclusively exclude the class from consideration of an exclusion,” they say.

The Government has already flagged exemptions for compulsory third party and add-on travel insurance.

The Insurance Council of Australia says it will work with the Government to demonstrate the value and benefit of certain types of add-on products where a four-day deferral would not be in the best interests of consumers.

“The decision should support economic recovery, ensuring businesses and consumers can transact efficiently and seamlessly,” a spokeswoman said.