The insurance product disclosure regime is “poor and inadequate” and the “vast majority” of consumers do not read the relevant statements, the Financial Rights Legal Centre warns.

The centre, which operates the Insurance Law Service, says the system needs reviewing.

Disclosure documents are too long, too complex, are not written in plain English and have no set structure for setting out key information, it argues.

“If disclosure works poorly, many consumers may have unsuitable cover,” Principal Solicitor Katherine Lane says in a submission to Treasury’s public consultation on insurance legislation amendments.

“The consequences of unsuitable cover can range from financial hardship to – in the case of natural disasters – homelessness and widespread government assistance.”

The public consultation was on draft amendments to the Insurance Contracts Regulations 1985.

The changes, which take effect on December 28 next year, are part of the Insurance Contracts Amendment Act 2013.

They are seen to benefit insurers by educating consumers on their duty to fully disclose before entering insurance contracts.

But the legal centre says a wider review of disclosure is needed because no information is provided to consumers at the time of purchase when buying over the phone, other than details of the type of insurance and premium.

It warns key fact sheets, which will be used by the industry from November, will not be “front and centre for consumers”. The sheets will be obtained only after buying insurance on the phone, or by following a link to a separate page online.

“We contend that determining the important information they need to read when entering into an insurance contract is a great challenge for consumers.

“A key part of making the process work is to ensure consumers are provided a notice that is prominent, easy to read, clear and timed when the decision is being made.”

This notice should be provided verbally for phone sales and presented prominently before other text online.

Statutory notices should be tested on sample groups of consumers, the submission says.