The Insurance Council of Australia (ICA) has backed a regulatory request to limit commissions for add-on insurance sold through car dealerships, saying it will lead to significant benefits for consumers.

Insurers including Aioi Nissay Dowa, Allianz, IAG, QBE and Suncorp have asked the Australian Competition and Consumer Commission (ACCC) to approve arrangements that will limit commissions to 20% of premiums.

The move reflects industry proposals released after an Australian Securities and Investments Commission (ASIC) report criticised high commissions on add-on products.

“We acknowledge that… a cap on commissions will have an impact on the motor dealer industry through reduced remuneration from commission payments,” ICA says in a submission to the ACCC.

“However, in the absence of voluntary reform to commission payments, there is a risk that a regulatory solution that restricts the sale of add-on insurance through this channel will have a greater impact on the motor dealer industry.”

ASIC has warned of inflated premiums and inappropriate sales conduct due to “reverse competition” driving high commissions on add-on products.

It says commissions paid to car dealers can be up to 79%, while in the past three years the claims payout ratio was nine cents for every dollar of premium paid, compared with 85 cents for car insurance.

The application to the ACCC says the 20% cap would likely be achieved initially through a code of conduct, including an obligation for participating insurers to report prices, claims payouts and loss ratios.

“The applicants seek authorisation on behalf of themselves and potentially other insurers,” the ACCC says.

Authorisation is sought for 10 years, or until the arrangement is superseded by another mechanism.

The ACCC expects to release a draft decision in December and a final decision in February.