The Insurance Council of Australia (ICA) and consumer advocates have suggested further consideration be given to Treasury’s planned reforms of the add-on insurance sales process.

Treasury sought feedback last month over its proposed “graduated” deferred sales model spread over three tiers, with distinct regulations for each level, to protect consumers from buying insurance products that offer little to no value.

A mandatory four-day pause period is one of the conditions attached to add-on products that fall under the second tier. Under this section, the intermediary or insurer can only make contact once with the consumer by writing four days after the underlying product sale.

According to ICA, a wide number and variety of insurance products would be included in the second tier since it would apply on a default basis to all add-ons not covered by the first. In the first tier, the Australian Securities and Investments Commission (ASIC) would use its new product intervention powers for the most “egregious” products.

“Given the range of beneficial insurance products potentially caught by tier two… it is crucial that there be a realistic and meaningful process for inclusion in tier three,” the ICA submission says.

"Many of these products would be suitable for exclusion from the application of a [deferred sales model] through primary legislation and the [ICA] looks forward to working through with Treasury the factual evidence to justify exemption.”

The third tier captures products that ASIC deems appropriate for exemption from deferred sales conditions. Comprehensive car insurance and other add-ons required under law as a condition of primary product purchase would fall in this category.

ICA says it understands the proposed approach “represents a hard policy decision” by the Government that is “not open for debate” but it still hopes Canberra will reconsider its position.

In particular, ICA is keen to swap the proposed approach to tiers two and three.

“Tier three could be the default treatment for all add-on insurance not deemed appropriate for tier one treatment. ASIC could then use its [product intervention powers] to require products of proven risks of serious consumer detriment to be sold with the [deferred sales model] under tier two,” ICA says.

A group of seven pro-consumer groups expressed support for the intent of the proposed reforms but have concerns in a number of areas.

Among concerns is the three-tier sales model, which they say is “overly complex” and subject to limitations of ASIC’s product intervention powers.

They also want a minimum seven-day deferral period and suggest that products that are exempted from the scheme must meet a list of pre-conditions including a claims ratio of 90% and conflicted remuneration must not be allowed.

The seven consumer advocates which made the joint submission are Consumer Action Law Centre, Financial Rights Legal Centre, Choice, Consumer Credit Legal Service WA, Consumer Credit Law Centre SA, Westjustice and Australian Communications Consumer Action Network.