The corporate regulator has blasted the insurance industry over expensive, poor-value add-on policies sold to car buyers, warning there are "serious problems" in the market that must be fixed immediately.
Australian Securities and Investments Commission deputy chairman Peter Kell said a review of add-on policies such as loan repayment insurance, wheel and tyre damage and extended mechanical warranties had found policies providing consumers with "very little to no benefit".
ASIC has found that buyers paid $1.6 billion over three years for add-on policies but policy holders received just $144 million in payouts while car dealers selling the insurance got $602 million in commissions.
The policies were sold in a high-pressure sales environment and often where a conflict of interest existed, ASIC said.
The review covered major insurers including QBE Insurance, Suncorp and Insurance Australia Group.
"It's an extremely poor reflection on the way that those insurance companies are treating this customer segment," Mr Kell told reporters at a media briefing on Monday.
"They need to think very carefully about how they're going to fix this because at the moment it reflects very poorly on the culture of the industry that would tolerate these sorts of sales practices."
Mr Kell said the policies were common practice across the new and used vehicle market, both for retail consumers and small business car buyers.
ASIC has warned it wants a "significant" reduction in commission payments, lower premiums and better cover.
The regulator also wants the industry to end single upfront payments for policies that are financed through a car loan - meaning customers end up paying interest on the cost of the policy.
ASIC also wants insurers to provide refunds to consumers who have been sold unfair policies.
The Insurance Council of Australia (ICA) said insurers would now seek to cap commissions at 20 per cent to reduce incentives for "inappropriate sales practices" and improve disclosure and customer communication.
"Insurers agree the sale process could be improved to assist consumers make better decisions on insurance," ICA chief executive Rob Whelan said.
Mr Kell said the changes were positive but there was still much to be done.
"If industry does not deliver swift improvements for consumers, ASIC will take further action, including enforcement action where appropriate," he said.
Consumer advocacy group Consumer Action Law Centre called for an immediate stop to the insurance industry's practices.
"A business model that relies on commission-driven sales, products with little to no value and in many cases illegal selling needs to be stamped out now," CALC CEO Gerard Brody said.
ASIC's report also covered Allianz Australia, AAI, Eric Insurance and Aioi Nissay Dowa Insurance.
