Banking royal commission: AMP, CBA insurance under scrutiny

AMP and Commonwealth Bank are set for another stint under the microscope in a session focusing on insurance in a fortnight.

Two big financial institutions already battered by the banking royal commission, AMP and Commonwealth Bank, are set for another stint under the microscope in a session focusing on insurance that kicks off in a fortnight.

It is not clear which aspect of AMP’s life insurance business is to be examined, but in late June the Australian Securities & Investments Commission launched legal action against it for allowing financial planners to churn client policies, earning them higher commissions.

CBA last year sold the insurance division to be probed by the commission, CommInsure, to Hong Kong’s AIA Group for $3.8 billion. The hearings are likely to focus on CommInsure’s use of out-of-date medical definitions for conditions such as heart attacks and its attitude towards paying out benefits.

CommInsure was last year investigated by ASIC after media reports alleging that in addition to using outdated medical definitions it sold worthless insurance and dragged its heels on payouts.

ASIC said its investigation of CommInsure was hamstrung by the current exemption for claims handling in life insurance from the Corporations Act.

The commission has already heard allegations of criminality against both AMP and CBA, with AMP stung for repeatedly lying to ASIC while last week counsel assisting, Michael Hodge, QC, said CBA committed more than 13,000 offences by failing to move customers from a high-fee super fund to the low-fee MySuper offering.

Other case studies to appear in the hearings, which begin on September 10, include Suncorp’s AAI, Allianz, IAG and Youi, all of which are to be grilled over their general insurance products.

The commission is expected to put the “direct” life insurance model under the torch, where sales are made by outbound call centres and through television advertising and are known to have notoriously adverse claims results.

ASIC will this week release a report following a sector-wide investigation into direct insurers, in which Freedom Insurance is expected to feature. Freedom Insurance, which will also be put on the stand at the royal commission, is one of the largest “direct” insurers and is listed on the local sharemarket. The company is currently trying to take over Bank of Queensland’s life insurance unit St Andrew’s, which featured in the royal commission after outbound call centre Select AFSL pushed thousands of unwanted policies onto disadvantaged indigenous customers. Independent insurer ClearView Wealth, which recently closed down its direct sales business after ASIC raised concerns about policies being mis-sold to indigenous customers, is also set to appear.

Industry super fund REST and insurer TAL, which is a big provider to the industry fund sector, are to appear at next month’s hearings, where they are expected to face questions on the sale of policies on which members are unable to claim.

The Code Governance Committee, which monitors the compliance of insurers with an industry code, the Financial Services Council and peak body the Insurance Council of Australia — which has been mired in a war of words with ASIC over its meagre response to clean up the predatory add-on insurance sector — are also to appear.

Action by ASIC has so far clawed back more than $120 million in refunds for ripped-off consumers who were sold worthless add-on insurance by car dealers, usually in return for hefty commissions.

The hearings “will consider issues associated with the sale and design of life insurance and general insurance products, the handling of claims under life insurance and general insurance policies, and the administration of life insurance by superannuation trustees”, as well as “the appropriateness of the current regulatory regime for the insurance industry”, the royal commission said.

An inquiry undertaken by the General Insurance Code governance committee chair Lynelle Briggs earlier this year found the industry’s code of ethics did not apply to a wide range of external insurance sellers, which included insurance brokers, banks, credit unions, finance brokers, car dealerships, airlines and ticketing retailers.