Board-level engagement and active response key to addressing ASIC's concerns 5 min read
ASIC issued a 'Dear CEO' letter to life companies on 18 August 2025, setting out key observations from a recently completed review of direct sales practices of life companies, although we think the issues raised have broader application for all insurers.
The letter notes that life companies have improved their practices since ASIC's last major review of the sector in 2018, leading to lower lapse rates and claim withdrawals. But there remain areas of concern which are resulting in increasing claims dispute rates. These include failure to integrate feedback into product design and distribution, persistence of pressure sales and retention tactics, lack of comprehensive response to complaints and inadequate governance of AI tools that are increasingly being used for quality assurance of customer contacts.
ASIC warns life companies to brief their boards and take action to implement improvements where relevant, and notes that steps life companies take in response to issues raised in the letter will inform its approach to future investigations and enforcement action.
In this Insight, we set out the key issues raised by ASIC and assess their future implications.
ASIC's observations
ASIC found that some life companies continue to rely heavily on sales data rather than customer feedback in product design, and flagged weak monitoring systems and lack of escalation processes for frontline staff to raise concerns. ASIC also found that some life companies' product teams lacked the authority and resources to quickly address problems that their internal reviews identified.
Life companies with better practices tested products with real customers before launching them and used insights from complaints, claims and customer surveys to monitor suitability of products for customer needs.
The better practice supports ongoing compliance with the design and distribution obligations which require monitoring of review triggers and ensuring that products and distribution arrangements remain appropriate on an ongoing basis.
ASIC continues to focus on compliance by issuers and distributors with the design and distribution obligations regime, and we expect this to continue.
ASIC raises concerns about ongoing use of sales volume-driven KPIs for sales staff, which can incentivise high-pressure or misleading sales tactics, and suggests incorporating KPIs that track compliance and customer outcomes.
Volume-driven incentives increase the risk of hawking and misleading and deceptive conduct by staff, as well as breaches of the 'efficiently, honestly and fairly' licensee obligation.
ASIC also suggests life companies should monitor both successful and unsuccessful sales calls, and comments positively on the use by some life companies of AI technology to enable monitoring of 100% of sales calls (successful and unsuccessful) for pressure selling and inappropriate behaviour. However, use of AI raises governance concerns, which ASIC also flags as discussed further below.
ASIC notes that life companies are doing fewer checks of retention calls (compared to sales calls) for quality assurance, and says cancelation processes 'should be straightforward and proportionate', balancing the provision of information to the customer with respect for the customer's decision to cancel their policy.
It notes that a small number of life companies still have complex, onerous or obstructive cancellation processes to deter customers from cancelling their policies. Again, these types of practices raise the risk of breach by the life company of its conduct obligations.
ASIC flags failures by life companies to share complaints data across the business, to escalate systemic issues, analyse trends and root causes and evaluate the effectiveness of changes introduced to address previously identified issues.
Its focus on how life companies address complaints is consistent with its recent announcement that it would review how super trustees learn from and respond to complaints—including board governance and oversight. This is clearly a focus for the regulator.
While not the primary focus of the review, ASIC flags significant variation in how firms govern AI and compliance technologies, with some lacking appropriate management frameworks, taking a 'set and forget' approach to technology or having insufficient testing and checking procedures.
Better practice is to have strong management frameworks, particularly around AI use, with clear accountability and ongoing monitoring consistent with REP 798.
The action ASIC has recently taken against licensees in relation to cyber risk management failures highlights that technology risks and governance arrangements are also a key focus.
Next steps
ASIC says that key observations from the review should be shared with boards and actions should be implemented where relevant in each life company's operations. ASIC has made clear that the steps that life companies take in response to this letter will inform its approach to future investigations and enforcement action.
Steps life companies could take include:
- Review and update product governance frameworks to ensure product design is informed by complaints, claims and cancellation data, and not just sales metrics. This should form part of the regular review of TMDs and product governance policies and processes. If there are shortcomings, the policies and processes should be updated, and products should be reviewed.
- Consider how remuneration structures address compliance and customer satisfaction issues (as well as other factors) and ensure they include compliance and customer satisfaction KPIs (in addition to or instead of any sales-based KPIs).
- Ensure quality checks are implemented across both sales and retention calls, and consider whether there is an opportunity to use AI tools to detect pressure selling and non-compliant behaviour across more (or all) calls.
- Review cancellation processes to ensure they are not unduly burdensome for customers.
- Strengthen complaints-handling systems, including sharing of insights and root cause analysis, to identify and address systemic issues.
- Establish or enhance governance frameworks for AI and compliance technologies, ensuring clear accountability, ongoing monitoring and alignment with ASIC’s expectations in REP 798.
While ASIC's review and letter focus on direct sales of life insurance, a number of the matters raised are of broader application. Product design and distribution obligations apply regardless of the channels through which a product might be distributed (although direct sales raise additional risks as life companies deal directly with largely retail client individuals, rather than sophisticated intermediaries, such as financial advisers or superannuation trustees who are required to act in their clients' interests), and conflicts management and complaints-handling obligations apply generally to AFSL holders.