The Australian government has opened consultation on draft regulations that would extend class exemptions for certain add-on insurance products from the deferred sales model (DSM) by five years, pushing their operation from October 5, 2026, to October 5, 2031. The move is the second time Treasury has been required to address the exemptions’ sunset clause – and the first time it has done so against a public record of opposing stakeholder positions, with industry calling for permanent relief and consumer advocates arguing for fewer exemptions altogether.
Parliament passed the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 in December 2020, establishing an industry-wide DSM for add-on insurance following the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry. The DSM introduced a mandatory four-day pause between the sale of a principal product or service and the sale of add-on insurance after the Royal Commission found widespread poor-value products, unfair sales practices, and worse claims outcomes than in other insurance markets.
The data behind that finding was significant. The Australian Securities and Investments Commission (ASIC) determined that for every dollar paid in premiums by consumers buying add-on insurance in car yards, they received just 9 cents back in claims (ASIC Report 492). For consumer credit insurance sold by lenders, only 19 cents was recovered for every premium dollar paid (ASIC Report 622). Insurers paid car dealers four times more in commissions than they paid consumers in claims, with dealer commissions reaching as high as 79% of the premium. Insurers ultimately agreed to repay over $290 million to customers who were mis-sold add-on insurance.
The draft regulations propose to continue exemptions for add-on comprehensive motor vehicle or vessel insurance, compulsory third party (CTP) motor vehicle insurance, home and contents insurance, and home building insurance – product classes the government describes as representing a high level of consumer value or as being mandatory under law. The commercial scale of the exempt classes is considerable. According to the Australian Prudential Regulation Authority’s (APRA) Quarterly General Insurance Performance Statistics, gross written premium for the domestic motor class reached $4.83 billion in the March 2026 quarter – the highest quarterly figure on record, up 23% from $3.92 billion in December 2023. In the householders segment, GWP grew from $3.82 billion in the December 2023 quarter to $4.49 billion in December 2025, a 17.4% increase in two years. APRA does not publish a discrete add-on insurance premium line, so these figures represent the full product classes rather than the add-on subset alone – but they illustrate the size of the market that continues to sit outside the DSM’s consumer-pause mechanism.
A prior Treasury consultation, which opened December 3, 2025, and closed January 30, 2026, invited stakeholders to provide evidence on whether the exemptions should continue and whether any new classes should be added. That process produced sharply divergent responses. The Australian Finance Industry Association (AFIA) submitted in February 2026 that it strongly supports the continuation of current class exemptions and recommends they be made permanent to ensure consumers retain access to high-value, low-risk products without unnecessary barriers or under-insurance risks.
The consumer advocacy community took the opposite view. The Financial Rights Legal Centre and Consumer Action Law Centre submitted in February 2026 that their long-held position is that there should be few if any exemptions at all to the DSM, arguing that known behavioural biases inherent in the add-on sales process have been long exploited by the insurance industry and their retailing partners, which have prioritised making a quick buck over selling suitable insurance products that people want and need, and that the sale of these products continues to cause significant consumer harm.
Treasury’s proposed five-year extension sits between these positions – neither the permanence sought by industry nor the narrowing sought by consumer advocates. The current exposure draft also invites stakeholders to comment on whether the ASIC Regulations should continue in whole or in part, and whether any new class exemptions should be granted – meaning the scope of the framework could still shift before the 2031 sunset date.
For insurers and intermediaries distributing the exempt product classes, the proposed extension provides regulatory certainty and avoids operational disruption to sales workflows, consumer disclosure obligations, and compliance infrastructure that a reversion to full DSM coverage would have required. Non-exempt add-on products – including mechanical breakdown insurance and tyre and rim cover – remain subject to the four-day deferral. Submissions on the exposure draft close Friday, August 7, 2026. The short window of approximately 11 days from the draft’s release reflects the proximity of the October 5 expiry date. Feedback can be submitted via the Treasury consultation portal.
