ASIC has released a report into the risk and life insurance sectors, which said there was an “unacceptable level of failure”. More than a third of advice was being given without complying with laws relating to appropriate advice and putting clients’ needs first, ASIC said.

It found high upfront commissions seemed to correlate with non-compliant advice, particularly in situations where advisers were encouraging their clients to switch products.

"The industry as a whole needs to consider how remuneration and compliance practices can better support good quality outcomes for consumers," said ASIC deputy chairman Peter Kell.

ASIC suggested insurers address “misaligned incentives” in their distribution channels.

Consultant David Whyte, who was managing director AIG Life Australia and executive director of the Ginger Group, said it was important New Zealand’s FMA did not follow in ASIC’s “adversarial” footsteps.

He said it was likely the FMA was keeping an eye on its counterpart's activity. “If the industry regulator in Australia believes that high upfront life product commissions are an issue there, what do you think it would make of the NZ scene?”

New Zealand's commissions are among the highest in the OECD.

He said: “There is an alarming tendency in NZ to mimic the culture, activities, and posture of other regulators, in particular those of ASIC.”

But Whyte said ASIC’s more combative approach had not done anything to protect consumers.

“It should be possible to create the culture within a regulatory environment which presents both remedial and preventative measures. Remedial measures apply after the event, while preventative measures should be a combination of incentive and requirement. At present, there is little incentive to embrace regulatory compliance, only the prospect of punishment in the event of non-compliance.”

Reducing commissions might drive advisers out, he said, not every policy replacement was churn and there were already mechanisms in place to direct advisers not to mislead a client or recommend an unsuitable policy.

“Every successful product and service has some form of distribution cost built into its pricing structure. Life insurance is no different, and any move to change commission structures should be carefully considered against the alternatives.”

He said there would have to be a large change in consumer attitudes to push life companies to change their commission structures.

MBIE has previously said commission levels and soft commissions may be considered as part of the review of the Financial Advisers Act.