The competition watchdog has knocked back a proposal by insurers to cap commissions paid to car dealers selling their add-on policies.
The Australian Competition and Consumer Commission knocked back an application by 16 insurers to impose a 20 per cent cap on commissions in a market that the corporate regulator has said is failing consumers.
"While insurers would benefit from a cap at the expense of car dealers, this conduct is likely to lessen competition between insurers, including by creating greater opportunities for explicit or tacit collusion and greater shared knowledge between insurers of competitors' costs," ACCC chairman Rod Sims said in a statement on Thursday.
"The watchdog is also concerned that a cap could significantly delay the development of more effective solutions to problems with add-on policies identified by the Australian Securities and Investments Commission."
ASIC said in 2016 that car buyers were being sold expensive and poor-value products that provided little or no benefit, including consumer credit insurance and tyre and rim insurance.
The corporate regulator also said car dealers earned $602 million in commissions, and that those commissions were as high as 79 per cent of the premium paid.
It called for reforms including a significant reduction in commissions paid for the sale of add-on insurance, and has previously described the proposed 20 per cent cap a positive step.
ASIC on Thursday told AAP that an effective cap on commissions could still be considered as part of a reform package, including a deferred sales model, where customers are contacted after a sale so they have time to consider further purchases.
The Insurance Council of Australia said the industry was working with ASIC to increase protection and value for customers who purchased add-on insurance.
"This includes the commission cap, as well as strengthened sales systems to identify and prevent sales to consumers who would receive little or no benefit from these products," a spokesman said.
"Add-on insurance policies provide a level of financial protection to consumers when they make some of the biggest purchases of their lives."
Australian Automotive Dealer Association chief executive David Blackhall said the ACCC's rejection of a cap on commissions meant "justice has been served".
"The proposal that the ACCC has rejected is the application by 16 insurance companies ... to engage in cartel behaviour," he said.
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