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Unconscionable Conduct & Insurance Sales

Tuesday 12 July 2022

Another Royal Commission case study finds itself in front of the federal court. 

In a formal statement the Australian Securities and Investments Commission (ASIC) announced the federal court findings of the unconscionable conduct for Select AFSL, Blue INC Services and Insurance Marketing Service.

These findings were related to the selling life insurance, funeral, and accidental  injury insurance. 

ASIC Commissioner Sean Hughes said in an official statement, “In making findings of unconscionable conduct, the Court has emphasised that consumers must have the opportunity to understand and consider the features of the insurance product they’ve been offered. ASIC will pursue those who take advantage of consumers, wherever they are, and including in remote parts of Australia. This case serves as a reminder to insurers to ensure their distributors act appropriately and put the needs of consumers first.”

Past challenges with insurance sales
This comes four years after  ASIC report 587 on the sale of direct life insurance which identified a few key areas of concern:

  • Outcomes for consumer who buy direct life insurance are often poor
  • There is a clear link between  sakes conduct and poor consumers outcomes
  • Firms engaged in sales conduct that is likely to lead to consumer buying a product they do not want or cannot afford, or that does not meet their needs
  • Some products or products features provided little value  to consumers, while others were difficult to understand  and there fore may not perform as expected
  • Training and scripts did not always set clear and professional standards for sales conduct
  • Quality assurance frameworks were not always effectively  designed to detect and addresses poor sales conduct
  • Conflicted incentive  schemes were linked to inappropriate point-of-sale  conduct
  • Our [ASIC] review of sales culture shows  that there can often be a disconnect between firms’ ‘target culture’ and what happens in practice
This also comes three years after the ban of unsolicited cold calls. The  Regulatory Guide 38 The Hawking Provision released last year defines scope on the hawking prohibition of the certain financial products. 

Further contraventions
Beyond the findings of unconscionable conduct ASIC also listed contraventions:

  • coercing four of the consumers to sign up to policies by using pressure tactics such as speaking too quickly, rushing through the sales calls and ignoring repeated objections and requests for time by consumers to consider whether they wanted to buy the insurance;
  • unduly harassing five of the consumers by repeatedly contacting them and seeking payment of premiums for a policy they did not want, or could not afford;
  • making misrepresentations to 13 of the consumers about the insurance, including that optional extra formed part of a standard policy when they were an extra cost and that there were no or limited exclusions to the insurance; and
  • failing to act efficiently, honestly and fairly when providing financial services in running its ‘Refer a Friend’ program. This program saw new consumers incentivised to provide contact details for family and friends without their consent. Select’s agents then implied to those people that the referring customer had endorsed Select’s insurance policies. The Court found Mr Howden was also involved in this contravention.