Sales of add-on insurance at car dealerships and other “toxic” products and practices should be banned outright, Choice says today in a submission to the Hayne royal commission.

The consumer group also wants protections from unfair contract terms to apply to insurance and the axing of all forms of bonuses, including commissions and non-monetary incentives linked to sales targets.

Additionally, Choice says the Australian Securities and Investments Commission (ASIC) must be empowered to administer mandatory industry codes, and calls for the civil penalty regime to include all aspects of insurance services such as the handling and settlement of claims.

Choice has been joined in its submission by the Superannuation Consumers’ Centre – a group set up in August using $2.5 million raised from enforceable undertakings by ANZ and the Commonwealth Bank for mis-selling superannuation.

Their joint submission responds to the policy questions document that followed the insurance round of hearings at the royal commission last month.

The deadline for submissions has now passed, and while the Insurance Council of Australia and the National Insurance Brokers Association have prepared submissions these are yet to be made public.

The consumer groups say strong measures must be used to fix the “systemic problems” uncovered by the royal commission.

“We need to move away from regulatory responses that ask industry if they would like to fix the problem to responses that force industry to fix the problem, while only consulting with them on options to implement reform,” the submission says.

“There must also be major reforms to incentive structures in the insurance industry, which have been the primary contributor to its systemic culture of non-compliance.”

The submission says consumer protections are extremely limited and often lead to insurers failing community expectations.

And the groups say product disclosure statements and a lack of standardised key definitions are glaring areas in need of attention.

“Consumers are presented with long and complex terms and conditions and expected to understand them,” the submission says. “This is particularly the case in insurance where a definition, potentially hidden a hundred pages deep in a product disclosure statement, can radically alter the value of a policy.

“Standardising definitions and ensuring that products available on the market are appropriate will be more effective in minimising consumer detriment than disclosure.”

The submission agrees with Treasury’s proposal to extend prohibitions on unfair contract terms to insurance contracts, which has long been opposed by the industry.

Such a move would address some of the problems created by inconsistent definitions, the submission says.

The submission contains a total of 16 recommendations, with a significant portion specifically for the life industry.

It wants Canberra to ban accidental death policies and direct sales of products via outbound call centres and establish an independent inquiry to develop a clear purpose for default life cover in superannuation.

A joint regulator taskforce to improve consumer protections contained within the Insurance in Superannuation Voluntary Code of Practice is also on the proposal list.