Add-on insurance will be most affected when new product design and distribution laws take effect in April 2021, according to Finity.

The legislation, passed in April, clamps down on the sale of financial services products of little benefits to consumers.

“For many uncontroversial insurance products such as home and motor, the changes will be limited to the processes, documentation and compliance requirements on insurers and product sellers, with no discernible customer impact,” Finity says.

“For most add-on insurance products or those with high commissions and/or low claim ratios, the changes will be significant. The design and distribution obligations may be the most significant regulatory tool in response to the concerns about add-on insurance products and how they have been sold.

“We anticipate that insurers will need a ‘low-value product’ framework to guide their decisions in this area and it will be a big challenge for many in the industry.”

The actuarial consultant also believes the industry should include in its code of practice the Hayne royal commission’s recommendations applying to general insurance products.

This would allow insurers to ensure the changes, which the royal commission crafted for the wider financial services sector, are relevant to the industry and produce the intended effects.

“The changes out of the Hayne royal commission apply to lots of different parts of the [financial services] industry,” Finity Principal Geoff Atkins told insuranceNEWS.com.au.

“None of them apply only to general insurance and, when you think about the range, from banks to investment funds to lenders to brokers to self-managed super funds, there are a lot of details, a lot of specifics.

“One of my themes has been about things being fit for purpose, so could you leave the legislative changes very simple?”