Add-on insurance products sold to Australians by car dealers are "expensive", "poor value" and "provide little to no benefit," the Australian Securities and Investments Commission has found.

In a report based on data collected from seven general insurers who issue add-on insurance products, ASIC found car dealers received four times more in commissions than consumers received in claims between 2013 and 2015, totalling $602 million.

ASIC Deputy Chairman Peter Kell said there were "serious problems" in the add-on insurance market that needed to be reviewed immediately by insurers.

"ASIC will be undertaking further work, including potential enforcement action, to ensure that 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."

Examples of the products being sold to consumers purchasing new or used cars include consumer credit insurance, tyre and rim insurance, gap insurance and mechanical breakdown.

Over the three-year period ASIC found consumers had paid $1.6 billion in premiums, but received just $144 million in successful insurance claims.

Consumer credit insurance claims payouts were found to represent five cents for each dollar of a premium while, in some cases, policies have been sold where it is impossible for the consumer to receive a payout that is greater than the cost of the insurance.

The report also found that the nature of the car sales environment could influence the decision making of consumers, where conflicts of interest and pressure sales tactics are present.

ASIC said the intention of the report was to put general insurers "on notice" that they needed to improve consumer outcomes through changes to the pricing, sale and design of add-on insurance.

Mr Kell said the report would be followed by further work to improve the space, including potential enforcement action and attempts to enable refunds for consumers who have been sold inappropriate products.

In response to the findings, the Insurance Council of Australia announced a range of proposed measures to "address ASIC's concerns about these products and sales practices".

Their suggested changes included a transition to capping commissions at 20 per cent, enhanced disclosure about policy terms, improved sales and communications systems and a financial literacy initiative to improve industry's response to customer queries.

"Add-on insurance policies play a role in protecting consumers when they make some of the biggest purchases of their lives," said Insurance Council of Australia CEO Rob Whelan.

"They can protect policyholders who lose jobs, become sick or injured, or write-off their vehicles, from potentially crippling debts. However, insurers agree that improvements can be made."

Consumer advocate Consumer Action Law Centre said the findings of the ASIC report were "damning" and highlighted the "atrocious value and shocking sales practices at car yards".

"Flogging junk insurance has been going on too long," said Gerard Brody, CEO of Consumer Action Law Centre.

"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. Any Australian who's shopped in a car yard needs to check their paperwork and fight back."

Through Consumer Action's online resource DemandARefund.com Australians have made claims for more than $300,000.

One such consumer was Paul Quinn, who was led to believe he needed "gap insurance" to get approval for a loan when buying his Toyota RAV4 five years ago, at a cost of an extra $1090.

"But I didn't need it because I had comprehensive insurance, which covers the vehicle in the event of a total loss, and there was a reducing debt," said Mr Quinn told Fairfax Media in June.

The report released by ASIC on Monday followed two reports earlier this year, which found life insurance sold as an add-on product through car dealers could cost 18 times more than cover obtained through other channels. 

Five common add-on insurance products reviewed by ASIC

• Consumer credit insurance (CCI) - protects a consumer's ability to make repayments under a credit contract (this includes insurance for the consumer against injury, sickness, disability, unemployment or death).
   
• Loan termination insurance or 'Walkaway' insurance - similar to the above, but the difference is the main benefit is payable only if the car is returned to the dealer, so it won't help a consumer keep the car if they become disabled or sick.
   
• GAP insurance - this comes into play if a consumer writes off their car, and gives them cover for the difference between what they owes on their loan, and the market value paid out under their comprehensive car insurance.
   
• Tyre and rim insurance - as the name suggests, these cover the cost of repairs tyres and rims damaged on road, by blowouts or punctures. 
   
• Mechanical breakdown insurance - this is also known as an 'extended warranty' and covers the cost of repairing/replacing car parts that have suffered a mechanical failure after the manufacturer's or dealer's warranty has expired