The Insurance Council of Australia (ICA) says insurers plan a 20% cap on commissions for add-on insurance products sold through car dealerships.

The announcement follows an Australian Securities and Investments Commission (ASIC) report released today that shows consumers are buying expensive, poor-value products in an environment of pressure selling, very high commissions and conflicts of interest.

The ASIC report says commissions paid to car dealers can be up to 79%.

In the past three years the claims payout ratio was only nine cents for every dollar of premium paid, compared with 85 cents for car insurance. In the same period insurers paid 4.2 times more in commissions to car dealers ($602.2 million) than in claims ($144 million).

After lengthy consultation with ASIC the insurance industry proposes capping commissions at 20%; enhancing disclosure to ensure better understanding; providing better post-sale communication; enhancing systems to identify and prevent sales to customers who would receive limited benefit; and devising a financial literacy initiative for consumers.

ICA CEO Rob Whelan says he is confident the changes will address ASIC’s concerns.

“Insurers agree the sales process could be improved to help consumers make better decisions on insurance,” he said.

ASIC Deputy Chairman Peter Kell says there are “serious problems” in the market that must be “immediately” and “comprehensively” addressed by insurers.

“ASIC will be undertaking further work, including potential enforcement action, to ensure this market delivers acceptable outcomes for consumers,” he said. “We will also be looking at how insurers can refund consumers who have been sold inappropriate products.”

The Consumer Action Law Centre says add-on insurance is often unnecessary – overlapping with other protection – or is sold to people who are ineligible to claim.

CEO Gerard Brody says the centre has helped people pursue more than $300,000 in refunds, but millions of dollars are still owed to victims of “atrocious practices”.

He says people who bought such cover need to check their paperwork and “fight back”.