The banking royal commission has revealed the corporate regulator gave the Commonwealth Bank's insurance arm the chance to change a media release and negotiate the consequences of misleading advertising.

CommInsure managing director Helen Troup fronted the inquiry for a second day and was questioned about a series of advertisements on the insurer's website promoting its life insurance policies that included cover for heart attacks.

As uncovered in a joint investigation by the ABC's Four Corners and Fairfax in 2016, CommInsure used an outdated medical definition, leading to some claims being rejected despite customers having suffered heart attacks, as diagnosed by medical professionals.

The Australian Securities and Investments Commission (ASIC) undertook an investigation into CommInsure's practices in the wake of the allegations — ultimately finding the insurer had not broken the law but should have treated its customers better.

CommInsure negotiated with ASIC, shown draft media releases

The regulator separately looked into a series of advertisements on the CommInsure website between mid-2013 and early-2016, raising concerns they were misleading and deceptive about the extent to which customers would be covered if they suffered a heart attack.

"Did ASIC take any enforcement action against CommInsure in relation to any of these advertisements?" asked senior counsel assisting the inquiry Rowena Orr QC.

"I'm not sure if enforcement action is the correct term, but we did come to an agreement as to how to close the matter," said Ms Troup.

Correspondence showed ASIC had provided CommInsure with the draft of a media release and asked if the proposal was "sufficient" to resolve the matter.

Commissioner Kenneth Hayne interjected, grilling Ms Troup about the correspondence.

"The regulator asking the regulated whether the proposal was sufficient in the eyes of the party alleged to have broken the law, is that right?"

"We could have taken the approach of continuing to defend our position, so this was the alternative," replied Ms Troup.

In the correspondence, ASIC suggested CommInsure acknowledge that, prior to March 2016, the statements on the CommInsure website may have been misleading and deceptive.

In reply, CommInsure suggested an softer alternative, acknowledging that, prior to March 2016, ASIC's concerns could have been "reasonably held".

Commission prompts admission of misleading advertising

When ASIC later put out the media release it did not contain any acknowledgement.

When asked whether it was a good outcome for CommInsure, Ms Troup told the hearing that CommInsure felt at the time it had "elements of defence".

"You don't think that a consumer reading the website might think that, 'heart attack — medical term, if the doctor tells me I've had a heart attack, I've had a heart attack'," said Commissioner Hayne.

"You don't think that'd be the chain of reasoning the normal consumer would follow?"

Under questioning, CommInsure's Helen Troup admitted that the advertisements were misleading — the first acknowledgement the insurer has made about the wrongdoing.

CommInsure paid a voluntary community benefit payment of $300,000 following ASIC's investigation — an amount Commissioner Hayne described as "very small", in light of the potential penalties of at least $8 million available to the regulator.

"Did CommInsure come out of this process thinking that it had been punished or brought to book?" asked the Commissioner.

"Yes we did, sir," replied Ms Troup.

Breast cancer survivor had to fight for payout

The commission heard another case of a trauma claim denied by CommInsure on the basis of a medical definition.

A policyholder of more than 20 years made a claim after being diagnosed with breast cancer and undergoing two surgeries and radiotherapy.

CommInsure repeatedly denied the claim, telling the customer her case did not involve "radical" surgery.

However, the term "radical" was not defined in CommInsure's policy.

Several medical practitioners provided statements on the customer's behalf, saying the surgery and treatment was "radical" despite not involving a full mastectomy, and noting that full mastectomies had become less common since CommInsure's definition had been updated 18 years earlier.

The customer took her complaint to the Financial Ombudsman Service (FOS) and, after a protracted process, the ombudsman found in favour of the customer, and CommInsure payed her out nearly $175,000, including interest.

Ms Troup accepted that it was the right decision and that CommInsure's actions in disputing the claim had caused additional distress to the customer.

CommInsure is still corresponding with the ombudsman about whether there are systemic issues in relation to its denial of breast cancer claims.

Ms Troup said she felt it was an "isolated incident" but would consider whether there needed to be a further review.

The definition was updated in May 2017 to explicitly state the types of breast cancer surgeries covered.