If you want to know the regulations about the clearance required for insulation around down-lights, check out the information that I found in the Australian Standards...
http://bendigowaldorf.blogspot.com/2014/09/as3000-clearance-around-downlights.html
If there is already a thread about this please let me know and I'll delete this one. I couldn't find a thread so I thought that I'd create one.