A review of direct life insurance sales has found significant numbers of consumers cancelling policies or letting them lapse following “shocking” sales tactics.

The Australian Securities and Investments Commission (ASIC) investigation found that between 2012 and last year, 20% of consumers cancelled within cooling-off periods, while one-quarter of all policies that lasted beyond that lapsed within the first year.

Almost half of all policies held beyond cooling-off periods lapsed within three years.

ASIC says the high number of cancellations may indicate consumers realising they made bad decisions or were pressured into buying products they did not need.

The figures indicate consumers are unable to make informed decisions, it warns.

The ASIC report also exposes pressure sales techniques, including refusing to send paperwork until a client has committed to buying, deferring payments to close a sale and excessive “objection-handling”.

And a sister report finds consumers struggle with the complexity of direct life products.

About 66% lack a clear idea of the exclusions in their policy, and 37% believe the cost of cover will stay the same each year.

Claims outcomes for direct products are also poor compared with products sold through other channels. Data compiled by ASIC and the Australian Prudential Regulation Authority from the six months to June last year found 93% of finalised claims across all channels were accepted, compared with 84% in the direct channel.

Figures from the previous three years were even worse, with only 79% of finalised claims admitted.

All companies covered in ASIC’s review of sales calls failed to provide adequate information about important aspects of their cover. Four provided inadequate information about exclusions for pre-existing medical conditions, and none consistently gave clear explanations about the likely future costs of policies.

Six out of eight companies offered a more limited life insurance policy when consumers refused an initial sale, without clearly warning about limitations or exclusions of the downgraded policy.

Consumers who bought via outbound sales calls were less likely to be told about pre-existing condition exclusions, and more likely to be told they did not need a medical examination.

Premium features were complex and relied on consumers identifying and opting out of benefits that offered poor value.

ASIC says accidental death insurance recorded a claims ratio from 2015 to last year of only 16.1%.

The regulator expects the next iteration of the Life Insurance Code of Practice to address the issues raised. ASIC says it will collect data on cancellations and policy lapses in six-month intervals and will intervene if consumer outcomes do not improve.

It will restrict outbound sales calls for life and funeral insurance.

Financial Rights Legal Centre Policy and Advocacy Officer Drew MacRae told insuranceNEWS.com.au the findings are shocking.

“We hear about a lot of these issues and the results of this on our insurance law service phone line, so we certainly know the figures… do reflect the reality we see every day,” he said.

The centre supports ASIC banning outbound sales calls, Mr MacRae says.

“The life insurance code in its first iteration was a fair start that needed a lot more meat to it, and it’s time for insurers to strengthen that and make it a more robust and rigorous code,” he said.