ASIC wants to ban high-pressure "cold call" sales of life and consumer credit insurance ahead of planned government reforms to the sector.
The corporate watchdog says banning unsolicited telephone sales of direct life and funeral insurance, as well as consumer credit insurance, will prevent consumers paying for products "they do not need, want or understand".
ASIC commissioner Sean Hughes says the proposal is consistent with recommendations from the financial services royal commission and would provide further protections from mis-selling practices now before the federal government made broader reforms.
"It is only fair that consumers have a proper opportunity to consider which insurance product best meets their needs and then compare alternative products, without feeling pressured to make a purchase," Mr Hughes said.
The Financial Rights Legal Centre said consumers were often contacted by insurers unaware they had agreed to terms and conditions that signed them up to relieve marketing calls.
These can include when someone entered a competition or completed a survey or if they are already a customer of a non-life insurance business.
Financial Rights director of casework Alexandra Kelly said unsolicited direct life insurers and their associated partners were the "used-car salesmen" of the insurance industry.
"These businesses trick you into receiving a call and then use high-pressure sales tactics to bag a sale," Ms Kelly said.
"These tactics can include refusing to send out paperwork unless you agree to buy the product first, not explaining the future cost ands exclusions of a product or offering promotional gifts to reel you in."
ASIC announced last year it would restrict unsolicited sales of direct life insurance after it found a link between outbound sales calls and sales conduct issues, including pressure selling.
A number of companies have already felt the watchdog's wrath for mis-selling insurance.
In February 2018, ClearView refunded more than $1.5 million to 16,000 customers after pressuring them to buy life insurance over the phone, while Latitude Insurance provided refunds of about $1.1 million to 905 customers after it mis-sold consumer credit insurance and incorrectly denied claims on policies.
Commonwealth Bank has also refunded over $10 million for mis-sold consumer credit insurance.
The federal government has already committed to implementing a recommendation to prohibit unsolicited sales of superannuation and insurance products.
ASIC is seeking feedback on its proposal.