Consumer group want insurance reform

The federal government has been called on to close insurance loopholes that allowed insurance giant AAMI to dodge paying full entitlements to 2015 Victorian bushfire victims.

Consumer advocates CHOICE say the legislation is ready to go and should be introduced to parliament this sitting fortnight.

The changes recommended by the banking royal commission would put an end to unfair terms in insurance contracts, including home and contents, travel and pet coverage.

Chief executive Alan Kirkland said when Victorians who lost their homes to bushfire on Christmas Day in 2015 tried to claim insurance, AAMI used a loophole to pay them back at a rate or quote they determined rather than covering the full cost of repair.

Mr Kirkland pointed to other examples of unfair terms in travel and pet insurance which he said would have blindsided punters.

"For every other industry in Australia, if a business puts an unfair term into a contract they can't rely on it," he told AAP.

"But when those laws were brought in (in) 2010, the insurance industry got a carve out."

He said the insurance industry had been fighting the changes for more than a decade out of concerns it would hurt their profitability.