Some of the Hayne royal commission’s proposed reforms directed at general insurance may undermine consumers, the industry has warned, urging Treasury to consider amending its draft legislation.

Of particular concern to the industry are the suggested measures to end hawking of insurance products and the recommended format of the deferred sales model for add-ons.

The Insurance Council of Australia (ICA) supports the aim of the anti-hawking action to protect consumers from pressure sales tactics, but wants what it sees as shortcomings in the proposed legislation addressed before implementation.

“In our view, the policy intent behind this recommendation could be more effectively achieved by targeted legislation which bans unsolicited telephone calls and other pressures sales tactics with appropriate levels of civil and criminal penalties,” ICA says in a lengthy submission to Treasury.

The proposal in its present form “goes well beyond the objective of protection from high-pressure selling and will largely remove the ability of insurers to engage proactively with their customers about products to optimise their level of protection,” the council says.

And it warns the new anti-hawking provisions should not result in customers being unable to benefit from speaking with their insurers about bundled home and motor products.

“It is crucial for insurers to be able to speak with their customers generally about the full suite of products,” ICA says. “Our concern is that the current drafting could be interpreted to cover a much broader set of conversations than ‘offers’ of insurance’ as set out in the current legislation.”

The proposed commencement date for the anti-hawking rule also comes in for criticism, with the insurers saying it should align with that for the deferred sales model, with a 12-month transitional period for the industry to update its compliance systems and retrain staff.

ICA says it is “seriously concerned” that the suggested deferred sales model will lead to widespread consumer detriment.

“The [deferred sales model] as proposed would significantly reduce a customer’s ability to choose insurance products which provide them the coverage that they need, when they need it,” ICA says.

“The proposed [model] would also require substantial changes to our members’ compliance systems, resulting in a large spike in ongoing costs, which will likely be passed on to customers by way of increased premiums.”

ICA voiced similar concerns in a submission last October, when it said the proposed model – which would capture all add-on products by default – would lead to worse consumer outcomes.

Treasury consultation on the draft exposure legislation to implement the reforms closed last month. The legislation covered 22 recommendations including several that are aimed at general insurance.

Major insurers IAG and Suncorp have also singled out the proposed anti-hawking measures and deferred sales model in its submission, saying they are areas of concern.

IAG says the anti-hawking recommendation could result in its consultants being prevented from providing advice to consumers that raises their understanding of products.

Suncorp is similarly concerned that some of the proposed measures could backfire and lead to worse consumer outcomes.

It backs removing the existing exemption of claims-handling and settlement from the definition of financial service, but remains worried other elements of the proposed legislation could result in more complexity for consumers.

Suncorp has previously expressed fears the claims-handling reform, which requires insurers to appoint suppliers such as electricians, roofers and smash repairers to become official representatives, could lead to a significant compliance burden.

“The reform would slow our ability to respond to customer claims and would restrict competition,” the insurer says.

“Customers wishing to rebuild their homes would be harmed as the increased administrative burden on small businesses would slow down the recovery process, either due to the time taken to appoint the builder as an authorised representative or because they choose not to undertake insurance work.”

Consumer advocates support Treasury’s draft legislation, with Financial Rights Legal Centre CEO Karen Cox saying the reform of insurance regulation “is long overdue”.

Click here for the ICA submission.