Royal Commission: Poor policy

The sixth round of public hearings in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has highlighted widespread shortcomings of Australia’s $125 billion-plus life and general insurance sectors.

The sixth round of the banking Royal Commission was held in Melbourne from 10–21 September and turned its attention to the sale, promotion and design of life insurance and general insurance products, handling of claims, and the administration of life insurance by superannuation trustees. It included deferred case studies relating to natural disaster home insurance policy claims and add-on insurance policies sold through travel providers and car dealerships. The regulatory regime and industry’s dispute resolution mechanisms also came under question, with the Code Governance Committee, Financial Services Council and the Insurance Council of Australia in front of the Royal Commission.

Life insurance companies facing the Royal Commission included AMP, ClearView, CommInsure, Freedom Insurance, REST, Suncorp Life and TAL. General insurance case studies included AAI (Suncorp), Allianz, ANZ, CBA, IAG, QBE, Westpac and Youi. Among the case studies were examples of insurers targeting the poor and the disabled with inappropriate and unaffordable policies, ignoring laws preventing cold-calling consumers, and searching for legal and medical loopholes or exceptions in order to deny claim payouts.

In the case of ASX-listed life insurance group ClearView, the Royal Commission heard the insurer’s admission to 303,000 criminal breaches over cold-calling tactics. The insurer also admitted it had found 225 incidences of misconduct or conduct falling below community standards relating to life insurance, including mis-selling.ClearView chief risk officer Greg Martin told the Royal Commission that: “At the time we didn’t understand that we were breaching the anti-hawking laws. We just got it wrong. We made a mistake.”

Counsel Assisting shared other examples of the insurer’s alleged misconduct including targeting customers in lower socio-economic areas with policies more expensive and with fewer conditions than policies sold in more affluent areas. From the evidence Counsel Assisting attributed the cause of the systemic compliance issues to “a culture that tolerated aggressive sales tactics at the cost of compliance”, the volume-based remuneration and incentives structure for sales staff and “deficiencies in ClearView’s compliance program”.

In the case of Freedom Insurance, the Royal Commission heard of the alleged use of high-pressure sales tactics targeting vulnerable and disabled customers, including one case of a man with Down syndrome being forcefully sold funeral and accidental death insurance. Counsel Assisting submitted that the incident “was only one example of a broader pattern of inappropriate dealings with vulnerable customers”.

Of the broader evidence for the insurer, Counsel Assisting said “that the misconduct and conduct that fell below community standards and expectations can be attributed to Freedom’s culture and governance practices and its remuneration practices… highly aggressive and inappropriate sales practices… [and] failure to provide any training to its staff about dealing with vulnerable customers”.

Youi acknowledged 12 cases of misconduct or conduct falling below community standards and expectations. The misconduct concerned repair delays and poor workmanship relating to natural catastrophe claims, the lack of disclosure around claim reviews, and the remuneration of its claims handling staff. It was heard that for claims handling staff, 30 per cent of performance indicators related to new claims and only 10 per cent related to existing claims.

Other insurance case studies and admissions included:

Allianz 49 cases of misconduct, including misleading information on their website, claim and communications delays, and incorrectly charging customer bank accounts

AMP Concerns over moving customers to and from policies in order to increase commissions, and high premiums

ANZ OnePath Admitted to 17 cases of misconduct

CommInsure An alleged 60 cases of misconduct, some relating to the promotion and sale of policies covering heart attacks, the sale of unsuitable credit insurance, and the use of outdated definitions

IAG Admitted to 112 cases of misconduct, some relating to claims handling, general advice, sales practices, the value around add-on insurance products sold through car and motorcycle dealerships and the payment of incentives

MLC Acknowledged 40 legal breaches to ASIC or APRA

NAB Acknowledged 37 cases of misconduct or conduct falling below community standards and expectations, some relating to incorrect payments to customers, and unjustified claim rejections

QBE Concerns over add-on insurance sold through car dealerships, totalling over $15.9m in refunds to customers

REST Super Issues surrounding the handling of total and permanent disability cover, use of definitions, and questioning over the value of cover of income protection policies

Suncorp Acknowledged an unspecified number of cases of misconduct or conduct that fell below community standards and expectations

TAL Admitted to 31 cases of misconduct, some including misleading advertising, concerns over the handling of mental health and illness claims, and use of surveillance

Westpac Admitted misconduct or conduct that fell below community standards and expectations with the Royal Commission noting more than 250 insurance incident cases listed in filed documents.

A load of junk?

Counsel Assisting Rowena Orr QC outlined the key issues and concerns highlighted in the submissions. These included:

• Poor claims handling, including delayed and refused claims, difficulties experienced throughout the claims process, and insurer non-compliance with dispute resolution time frames as outlined in the Life Insurance Code of Practice
• The sale of inappropriate and “junk” products and policies that did not meet the needs of customers
• Concerns around disclosure, lengthy and complex product disclosure statements, and the use of non-standard definitions
• Direct and “pressure” selling techniques, cold-calling and misleading advertising • Insurance offered through superannuation including cases over “over-insurance” causing superannuation balance erosion, and general lack of consumer awareness and understanding.