The insurance industry has prioritised making money over serving customers’ interests by selling car buyers ‘junk’ add-on cover, the banking royal commission has heard.

The general insurance industry’s peak body admits there have been many cases of consumers being pressured to buy add-on insurance they don’t want or need from car yards.

Car dealers have been able to earn as much as 79 per cent in commissions on the premiums for add-on insurance such as tyre and rim cover or gap cover.

Insurance Council of Australia CEO Rob Whelan said the excessive levels of commission were unacceptable.

He said the ICA would support a legislated cap on commissions paid to car dealers, having previously suggested it be limited to 20 per cent of premiums.

But he did not back banning the commissions.

‘Banning commissions entirely would be, I think, a retrograde step,’ he told the commission on Friday.

‘But the idea of these excessive commissions around 70, nearly 80 per cent of premiums are exorbitant and encourage all the sorts of behaviour you were talking about before.’

Senior counsel assisting the commission Rowena Orr QC said the issues with add-on insurance indicated there was a culture across the industry that prioritised making money over serving the interests of customers.

It also showed an industry willing to take advantage of customers’ lack of understanding of complex financial products to sell them things they don’t want or need, she said.

Mr Whelan agreed both statements were true in the case of add-on insurance sold through car yards.

The regulator has raised concerns over the sale of expensive add-on products that are of little or no value, or what consumer groups label junk insurance.

Five insurers are refunding $118 million over add-on insurance sold through car dealerships to almost 213,000 people.