An enforced four-day pause in the sale of add-on insurance would allow time for a purchasing “halo-effect” to fade, Treasury says in a consultation paper on proposed new rules.

The Federal Government, which plans to introduce legislation by June 30 for an industry-wide deferred sales model, is conducting an extra round of consultation given the diversity of products and the absence of international templates.

A three-tier proposal in the Treasury paper would capture all add-on insurance products by default, minimising exemptions.

Under the second tier, intermediaries or insurers could only contact the consumer by writing four days after the underlying product sale, while consumers would have the option of shortening the pause to one day.

“An appropriate deferral length should be long enough to allow the ‘halo effect’ of purchasing the primary product or financing agreement to wear off, so the consumer is able to dispassionately assess their need for insurance,” Treasury says.

The Hayne royal commission recommended delinking the sale of add-on cover from the time when an underlying item is purchased after hearing evidence of shoddy practices.

The Australian Securities and Investments Commission (ASIC) has proposed reforms for products sold via car yards and has criticised high-pressure selling of consumer credit insurance.

Treasury’s first tier would see ASIC use new product intervention powers for “the most egregious add-on” products that cause detriment, while products in the third tier could be given case-by-case exemptions to the four-day rule.

Exemptions would apply where products are historically good value for money and well understood by consumers, where there’s strong competition and there is a danger of underinsurance.

Submissions on the consultation paper, available here, are due by September 30.