Consumer groups say a stronger regulatory framework is needed around funeral insurance to prevent inappropriate sales.

The Consumer Action Law Centre and Financial Counselling Australia raised the issue in submissions to the Hayne royal commission.

The law centre says funeral expenses products, like those sold by the Aboriginal Community Benefit Fund, should be covered by the financial services licensing regime.

Other funeral insurance products are regulated by the Corporations Act, creating a regulation gap and an incentive for companies such as the Aboriginal Community Benefit Fund to engage in “regulatory arbitrage”.

The Consumer Action Law Centre says a suitability test should apply to products such as funeral insurance, with relevant considerations including a minimum age, a cap on premiums at the value of total benefit, and an affordability assessment.

Financial Counselling Australia says funeral insurance sales should be banned to people aged under 30, unsolicited sales should be banned and product suitability standards introduced, which could also address the problem of double insurance.

It wants protection for policyholders in cases of cancellation for non-payment, with a 90-day grace period.

The Consumer Action Law Centre says the royal commission should find the Aboriginal Community Benefit Fund breached sections of the ASIC Act regarding its dedication to and association with the Aboriginal community.

It recommends the Australian Securities and Investments Commission (ASIC) seek freezing orders against the company in the course of any investigation into its conduct.

The Government should provide funding for community-led education on funeral products and the development of appropriate funeral products.

The Aboriginal Community Benefit Fund has rejected the findings of Counsel Assisting the commission Rowena Orr that it may have breached obligations of the ASIC Act around engaging in misleading or deceptive conduct.

It says it does not represent itself as an Aboriginal organisation, or as being affiliated with any Aboriginal organisation. Its use of the word Aboriginal is directly related to its purpose to meet the need for funeral insurance in those communities, it says.