At a glance
Seven years after the landmark report The sale of direct life insurance (REP 587) which exposed the deep-rooted problems in the direct life insurance market, the Australian Securities and Investments Commission (ASIC) has once again turned its attention to the direct life insurance business.
ASIC’s recent letter to life insurers, friendly societies and life insurance distributors should not be read as another ‘regulatory nudge’. It is a clear and urgent call to action.
Executive summary
On 18 August 2025, ASIC’s Commissioner Alan Kirkland sent an open letter to CEOs of life insurers, friendly societies and life insurance distributors (the letter), calling for renewed efforts to improve direct sales practices.[1] The letter follows a recent review to determine whether consumer outcomes had improved since REP 587.
Despite a nine-figure lesson in remediation after REP 587,[2] ‘notable deficiencies’ remain, as ASIC found. Some old problems persist, and new challenges and risks are emerging.
ASIC urges life companies and their boards to act swiftly after considering the observations in the letter and signals further regulatory actions, including investigations and enforcement actions.
There are three key takeaways from the letter:
- Life insurance retention practices have once again come under the regulatory microscope: insurers should review retention and cancellation practices to make sure they get the balance right.
- Product design and distribution should be informed by insights from complaints and claims data, consumer feedback and quality assurance checks.
- Opportunities and risks are emerging in the adoption of AI technologies - robust governance is key.
ASIC’s letter is a clear signal that the regulator expects life companies to move beyond compliance rhetoric and embed customer-centricity, robust systems, and strong governance into every aspect of their direct sales operations.
Retention is the new frontline - for businesses and the regulator
Unlike the earlier report that exposed misconduct across the entire consumer journey with a focus on sales, this time the spotlight fell squarely on retention.
The letter called out issues with insurers’ retention practices, including complex and onerous processes, retention tactics that pressure customers to stay, and a lack of rigorous quality assurance.
As direct life policies become increasingly costly to sell, retention has become the new growth strategy for many insurers. But while the sales practices were tightened after a wave of law reforms post the Royal Commission, the compliance rigour applied to sales clearly hasn’t carried across.
In ASIC’s Corporate Plan 2025-2026, ASIC is committed to reviewing the delivery of services in life insurance as a new strategic priority in FY26. The letter is a timely reminder for life insurers to strengthen service delivery on retention and cancellation.
Life companies should review their internal policies, business rules, staff training materials, call scripts, and communication plans to make sure they are getting the balance right between the ease of exit and safeguards for informed choice. They should also check the robustness of quality assurance on retention to ensure compliance with:
- the duty to act efficiently, honestly, and fairly, as well as the duty of utmost good faith, which may be called into question by heavy-handed retention strategies, excessive objection handling and onerous cancellation processes;
- the prohibition against misleading and deceptive conduct with respect to representations and promises made in retention conversations and offers; and
- the requirements of their AFS licence, especially regarding the type of advice they are authorised to give.
Product design and distribution - gaps in the feedback loop
A common thread running through the letter is the importance of a complete and functioning feedback loop to ensure consumer centricity in product design and targeted distribution.
There are clearly some missing links in the loop, as ASIC flags.
- Product performance metrics sometimes fail to capture consumer experience.
- Complaints data is not adequately analysed or escalated, preventing the identification and resolution of systemic issues.
- Insights from complaints, claims, and consumer feedback are not systematically used to monitor and improve product suitability.
- Quality assurance is hindered by small sample sizes or biased sampling methodologies, such as excluding non-converting calls, which can mask compliance issues.
- Inefficient systems prevent frontline staff from reporting concerns and taking actions.
In recent years ASIC has been quite active acting against harmful product design and distribution practices in life insurance. The case against HCF Life in relation to the pre-existing condition clause in some of its direct life insurance products clearly demonstrates the regulator’s resolve to address product features that may mislead or unfairly disadvantage consumers[3], and its willingness to test the boundaries of the laws it can use to achieve this goal.[4]
Robust internal systems supported by an effective feedback loop will help insurers detect issues with products and services early on, and put them in a better position to demonstrate compliance with the relevant conduct obligations when problems occur.
Third-party service providers
Although not specifically called out in the letter, the direct insurance market is heavily reliant on third-party distributors, making it even harder for insurers to have visibility into consumer experience and placing importance on reporting and data sharing.
ASIC’s action against Select AFSL, an insurance distributor[5], and the more recent proceeding brought against Choosi[6], a comparison site associated with a life insurance distributor, demonstrate its sustained attention to distributor conduct. In these circumstances, insurers should pay heightened attention to the reasonable steps obligation under the design and distribution obligations.
In light of ASIC’s observations, life companies should consider reviewing existing distribution and service agreements to determine if any amendments are required to ensure consumer insights are captured, utilised, and acted upon.
AI opportunities and risks - calling for stronger governance
The increasing use of technology - particularly AI-powered speech analytics - offers significant opportunities for life insurers to improve oversight and streamline quality assurance. ASIC’s letter notes that some life companies now use AI to monitor 100% of sales calls, a marked improvement over the traditional sampling approach. However, the maturity of AI governance varies across the industry. In some cases, AI solutions are being implemented without sufficient testing and in the absence of appropriate management framework.
The observations are consistent with ASIC’s finding in report Beware the gap: Governance arrangements in the face of AI innovation (REP 798), that the maturity of governance and risk management sometimes lagged the adoption of AI.
The increasing number of AI use cases in life insurance calls for a robust governance framework. As stated in REP 798, this generally includes:
- an AI strategy that is clearly articulated;
- risk appetite statement including AI explicitly;
- clear ownership and accountability for AI at an organisational level, including an AI-specific committee or council;
- AI strategy, risks and use cases reported to the board;
- AI-specific policies and procedures that reflected a risk-based approach, and span across the whole AI lifecycle;
- AI ethics principles incorporated into the consideration in the above; and
- investment in AI resources, skills and capability.
The gap between technology deployment and appropriate governance arrangements usually leads to prevalent consumer harm - like the general insurance pricing mistakes where poor testing of pricing algorithms and the lack of third-party oversight led to widespread overcharging and significant remediation costs.[7]
Minimising technology risks with a focus on the use of AI is one of ASIC’s strategic priorities in FY26, and it is committed to taking enforcement action to protect consumers from poor use of AI.[8] Insurers should act now to audit their AI use in pricing and underwriting, claims and complaints triaging, and call transcription analytics to ensure compliance with their general licensee obligations and consumer protection provisions.
