Analysts say that if ASIC follows the lead of its UK counterpart, Australia's major life insurers could be faced with a remediation bill of over $1 billion over 10 years.

KPMG Global Insurance Risk and Regulatory Lead Rob Curtis says it would provide a big financial incentive to fix problems in the sector.

“The roots of regulatory intervention and action in relation to conduct risk can be traced to the UK where a series of widely publicised mis-selling scandals, and the associated impact upon consumers and the industry, drove the regulator to take a more interventionist approach,” he said in a column for finance news site Money Management.

“Approximately £20 billion has now been paid to customers in the form of redress in relation to payment protection insurance, which demonstrates the widespread financial impact upon firms and the scale of the impact upon consumers. In the UK, for every £1 spent on up-front compliance, up to £16 has been spent on remediation.”

Curtis says that if ASIC takes a similar approach in Australia it could result in remediation costs to the industry of around $125 million per year.

The KPMG expert said that UK regulators were getting serious on the use of add-on premium options for existing insurance coverage as well, something ASIC was looking at too.

“The UK Financial Conduct Authority has levied heavy fines on some insurers for inappropriate use of such practises. The cost of redress has been approximately $40 per customer — which would result in a substantial capital provision if ASIC were to apply similar fines to Australian insurers,” he said.