Direct life insurance is to face the same scrutiny as advised sales, according to the Australian Securities and Investments Commission (ASIC).

In a submission to a Senate inquiry into consumer protection in banking and insurance, the regulator says a recent review “identified potential issues in sales practices for direct or non-advised policies. This distribution channel had the highest average declined claim rates – compared to retail and group policies – and generally higher lapse rates.

“This may indicate that inappropriate sales tactics are being used to sell these products to consumers.”

ASIC says recent legislative reforms may tackle some problems identified.

“As part of our ongoing work, we will conduct a thematic industry review of life insurance sales practices, focusing on direct or non-advised policy sales,” the submission says.

The regulator has also reiterated its belief that paying commissions on life insurance sales leads to bad advice.

ASIC says its research – which critics argue is seriously flawed – shows commissions influence advisers to pick a particular insurer.

“Where culture, incentive structures and systems are poor or misaligned, the conduct of gatekeepers we regulate can conflict with clients’ interests and can lead to unfair outcomes,” the submission says.

“We found that the way an adviser was paid (an upfront commission model compared to a hybrid, level or no-commission model) had a statistically significant bearing on the likelihood of their client receiving advice that did not comply with the law.”

ASIC recommends insurers address misaligned incentives in their distribution channels.

It wants them to review remuneration arrangements, to ensure they support quality outcomes for consumers and better manage conflicts of interest.

ASIC urges financial services licence-holders to ensure remuneration structures support quality advice that meets client needs. Other recommendations include a review of business models to provide incentives for strategic life insurance advice, and checking advisers’ training and competency.