Insurers Hit For Thousands Of Breaches

Industry super fund REST reported itself to the corporate regulator on Thursday for 184 potentially criminal breaches of the law, it was revealed yesterday, as counsel assisting the financial services royal commission catalogued a laundry list of wrongdoing by insurance companies.

REST’s confessions add to more than 300,000 crimes or potential crimes revealed just in the past fortnight of hearings — the last before commissioner Kenneth Hayne files his interim report, which is due to be handed to the Morrison government by next Sunday.

Barring an extension of time, the commission is set to hold one last round in Sydney in November, at which the chief executives of Australia’s big banks and financial institutions are expected to appear to face questions over potential policy solutions.

The commission, which has run since February, has electrified the financial services industry, costing executive jobs at AMP and NAB, encouraging the big banks to get rid of their troublesome wealth arms and closing down smaller businesses.

Yesterday, the cavalcade of crime revealed by the probe prompted former competition tsar Graeme Samuel to call for stricter enforcement of the law, while ASIC deputy commissioner Peter Kell admitted there was still much work to be done to clean up the financial services industry.

Wrapping up proceedings yesterday, counsel assisting the commission, Rowena Orr, QC, again sounded the klaxon, singling out misleading web pages and brochures published by CBA’s former insurance arm, CommInsure.

Ms Orr said CommInsure may have breached section 12DB of the ASIC Act, which can be a criminal offence, by making false and misleading statements about coverage for heart attacks in its trauma policy.

It also breached its duty under insurance law to act with utmost good faith towards insurance customers and there was “a troubling lack of respect” on the part of CBA for the Financial Ombudsman Service, Ms Orr said.

She said insurance giant TAL engaged in “excessive use of surveillance” and “bullying tactics”, “systemically” breaching its duty of good faith — problems driven in part by a profit-hungry culture and inadequate staff training. Mr Hayne said he was personally “struck” by evidence that a woman, who was hounded by TAL for eight years over a mental health claim, had her condition made worse due to the actions of the company, according to doctors. “Is it something which in any sense the insurer is somehow to be held accountable?” Mr Hayne asked.

Ms Orr’s colleague Mark Costello said AMP also committed potential crimes by failing to properly report to the corporate regulator that it had charged dead people for life insurance.

He told Mr Hayne that as of Monday AMP was still yet to tell the Australian Securities & Investments Commission that it was yet to refund charges levied on thousands of dead people.

“By what right is it deducted?” Mr Hayne asked.

“How do you deduct a life insurance premium for a life that is dead?”

Last night, an AMP spokeswoman denied the company had committed crimes.

IAG’s auto add-on sales subsidiary Swann “placed the pursuit of profit and the maintenance of market share above the interest of its customers by designing its ­remuneration and incentive programs in a way that promoted inappropriate sales”, Mr Costello said.

He said that in addition to its potentially criminal breaches, REST, which looks after retirement funds of more than $50bn, also broke the super law by failing to do enough to pursue a claim on behalf of a member who was made paraplegic, and fell below community standards by not giving members enough information about exclusions and continuing to deduct premiums from people ineligible for cover.

“That conduct can be attributed to the inadequacies of REST’s systems, including a lack of systems to detect changes in members’ circumstances that materially affect their insurance cover,” he said.

Freedom Insurance, where staff mocked the father of a 26-year-old man with Down syndrome when he called up to cancel his son’s junk policy, which had been forced on him, was recommended to have breached potential criminal anti-hawking provisions, along with breaking laws relating to commissions, unconscionable conduct and sales of products to vulnerable customers.

Mr Hayne said he believed the community would have been “particularly struck” when Freedom forced the Down syndrome man to cancel the insurance by uttering the phrase, “I want to terminate the policy”. “There’s a particularly affecting record,” Mr Hayne said.

Allianz may have committed a crime by failing to report to ASIC misleading advertising it kept on its website for eight years, despite knowing it was a significant breach of the law, the commission heard.

Mr Samuel, the former chairman of the Australian Competition & Consumer Commission, slammed regulators for not enforcing the letter of the law on rogue financial outfits.

“When they talk about 300,000 criminally actionable breaches of the law, something is fundamentally wrong when they haven’t been actioned,” he told The Weekend Australian.

“What is becoming very transparent is that the regulatory solutions are already there in the books — what we need is regulatory enforcement,” he said.

“This conduct is illegal. This conduct is actionable. The laws are already there. What they’re saying is: nobody has been applying the law.”

ASIC deputy chairman Peter Kell, who will step down as a commissioner in December, said that “the breadth of misconduct right across the financial services sector in some of the largest of institutions has been a profound challenge”.

“There has been a very significant amount of work undertaken but that still needs to happen to get the financial services industry up to the standard the community ­expects.”


By Ben Butler & Michael Roddan

Business Review

22 September 2018

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