The granting of exemptions to several classes of insurance products from a new deferred sales model for add-on insurance has been criticised by consumer groups as not in the spirit of recommended industry reform.

The new regime, to start October 5, prohibits the sale of add-on insurance for at least four days after a consumer has entered into a commitment to acquire the principal product or service.

Treasury invited feedback from industry regarding regulatory exemptions after the sales model laws were passed by Parliament in December in line with the Hayne royal commission recommendations.

The Insurance Council of Australia (ICA) hailed the exemptions which were announced last week as a “win” for both insurers and consumers.

The exemptions include vehicle third party property damage, fire and theft, comprehensive cover for boats, motorcycles, motorhomes, caravans, and trucks, insurance sold within superannuation, and home building, home and contents and landlord insurance.

Consumer groups said the “sweeping exemptions to the insurance industry weaken the reforms” and were not in the spirit of the Hayne findings of high-pressure sales and unsuitable add on insurance being sold to consumers.

The exemptions risk undermining Commissioner Hayne’s recommendation for an ‘economy wide’ deferred sales model, Consumer Action Law Centre CEO Gerard Brody said.

“What evidence did industry provide to justify these regulatory loopholes?” Mr Brody asked. “The Government is already poking holes in its own legislation. This should be about protecting consumers, not insurers’ bottom line.”

The insurance industry had long warned that without exemptions, the new model may have led to non-insurance and under-insurance and expose consumers in cases where a purchase resulted in the immediate assumption of risk.

ICA CEO Andrew Hall last week applauded that the Government had “listened to the concerns of the industry and applied appropriate exemptions, so consumers are able to get immediate insurance cover to protect their valuable purchases”.

CEO of Financial Rights Legal Centre Karen Cox says the exemptions will only “entrench” problems in add-on sales.

“These exemptions are just more of the same old loopholes handed out to the same old insurers leading to the same poor outcomes for consumers we have seen for decades,” Ms Cox said.