Sales of add-on insurance and funeral policies are often harmful and offer such little value they fall below community expectations, the Consumer Action Law Centre says.

Mis-selling of products sold with vehicles, loans and credit cards is compounded by the high cost of cover and many exclusions and conditions, it warns in a submission to the royal commission on financial industry misconduct.

It says sellers offering products under “no advice” or “general advice” do not take into account consumers’ financial situations and needs, while reverse competition and sales incentives benefit car dealerships and insurers to the detriment of customers.

“It is common for consumers to be misled or taken advantage of unconscionably in the sales process for add-on insurance,” the submission says.

It also criticises the “two-stage” internal dispute resolution processes for handling insurance complaints.

“The lack of independence in the initial complaint process denies the complainant natural justice and can cause confusion. At its worst, this two-stage process can deter people from pursuing legitimate complaints because the process is seen as laborious.

“It can also damage consumer trust in insurance companies.”

The Consumer Act Law Centre plans to make a second submission addressing the issues that drive unacceptable conduct and the effectiveness of redress mechanisms.

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