The Australian Securities and Investments Commission says insurance and other financial product issuers need to improve their distribution practices or risk breaching compliance duties.

A review by the regulator found many issuers have limited due diligence arrangements for assessing and monitoring third-party distributors; many use poor-quality consumer questionnaires; and only a few monitor consumer outcomes and product performance.

“This review provides a snapshot of compliance with the design and distribution obligations across multiple industries and products,” ASIC commissioner Alan Kirkland said.

“Where there are opportunities to improve, we expect product issuers and distributors to reflect on the report’s findings and improve their distribution practices.”

The review, from October last year to last month, examined 19 product issuers, including three funeral insurance and accident insurance providers.

In relation to funeral and accident covers, the review found consumers are still offered quotes when responses to a “knockout” question indicate they are unlikely to be in the target market; and questionnaires ask solely about insurance eligibility criteria such as age and fail to ask about key target market criteria that relate to affordability.

Financial product issuers must take reasonable steps to ensure their offerings are designed for and sold to the intended market under the design and distribution obligations regime in place since October 2021.

Every product must have an accompanying target market determination statement setting out how the product is appropriate for its intended consumers and that distribution conditions appropriately direct the product to that market.

“Ensuring compliance with the design and distribution obligations is a key focus for ASIC,” the regulator said. “We will continue to take regulatory action where warranted and use the design and distribution obligations to improve consumer outcomes.”

Mr Kirkland says ASIC has begun five civil proceedings, with three wins to date, issued more than 80 stop orders and published the results of seven reviews since the design and distribution obligations started.

Click here for the report.