The Insurance Council of Australia (ICA) has voiced concerns “beneficial insurance products” could be forced to observe the four-day pause period Treasury intends to apply to all add-ons available to consumers.

In Treasury’s planned three-tier deferred sales model, the second tier would by default cover all add-ons that do not fall in tiers 1 and 3.

A mandatory four-day delay is one of the conditions attached to tier 2 products whereby the intermediary or insurer can only make contact once with the consumer by writing after the primary product sale.

“Given the range of beneficial insurance products potentially caught by tier 2… it is crucial that there be a realistic and meaningful process for inclusion in tier 3,” ICA says in a submission to Treasury.

“Many of these products would be suitable for exclusion from the application of a [deferred sales model] through primary legislation and [ICA] looks forward to working through, with Treasury, the factual evidence to justify exemption.”

In the first tier, the Australian Securities and Investments Commission (ASIC) would use its new product intervention powers for the most “egregious” products.

The third tier captures products that ASIC deems appropriate for exemption from deferred sales conditions. Comprehensive car insurance and other add-ons required under law as a condition of primary product purchase would fall into this category.

ICA says it understands the proposed approach “represents a hard policy decision” by the Government that is “not open for debate” but it still hopes Canberra will reconsider its position.

ICA is keen to swap the proposed approach to tiers 2 and 3.

“Tier 3 could be the default treatment for all add-on insurance not deemed appropriate for tier 1 treatment,” it says. “ASIC could then use its [product intervention powers] to require products of proven risks of serious consumer detriment to be sold with the [deferred sales model] under tier 2.”

Consumer advocates say in a joint submission that the three-tier sales model is “overly complex” and subject to limitations of ASIC’s product intervention powers.

ASIC has an ongoing consultation over plans for a deferred sales model to apply to add-ons sold through car dealers.