Banking royal commission grills Financial Services Council boss Sally Loane

Financial Services Council CEO Sally Loane’s lack of knowledge of insurance codes is exposed in an excruciating session.

Financial Services Council boss Sally Loane in the banking royal commission hot seat. Picture: Supplied

Financial Services Council boss Sally Loane’s lack of knowledge of the organisation’s flagship life insurance code of conduct and the insurance law has been exposed in an excruciating session at the banking royal commission.

The Financial Services Council is the peak lobbying and policy development body for the life insurance and for-profit superannuation industries.

Ms Loane was unable to explain the FSC’s position on a section of the Insurance Contracts Act that allows insurers to reject a claim for innocent events of nondisclosure by customers.

Taken to the FSC’s endorsement of changes to the law in 2013 by counsel assisting the commission, Rowena Orr, QC, and asked what the FSC’s current position was, Ms Loane said: “Look, I’m sorry, I don’t have the up to date detail of when we said that and what we think now.”

Ms Orr asked: “And you don’t have a current position on that yourself?”

“Not myself, no,” Ms Loane replied. “I don’t know the detail of that but I can certainly provide that detail to you.”

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Ms Orr complained that the royal commission had asked the FSC to put forward a representative who could answer all of the questions related to the rubric provided by the inquiry.

Counsel for the FSC said the lobby group had offered up both Ms Loane and another worker, Nick Kirwan, who specialises in the code.

However, they were asked to offer up only one person who could answer all questions.

Ms Orr responded that the FSC had assured the commission Ms Loane could answer questions on the code.

Ms Loane was also asked about the lobby group’s position on “fishing” -- a practice where life insurers trawl through medical records of customers to find information that could be used to deny a claim. Evidence before a parliamentary committee has found entire medical records have been handed over by doctors.

However, despite the FSC’s position being attached to her witness statement, Ms Loane was unable to answer the question.

“Do you know what reference to “no fishing” is?” Ms Orr asked.

“No I don’t. This was put together by a member of my staff who is, his entire job is to deal with the code,” Ms Loane said. “I’ve been trying to spend every minute with him to understand the detail of his work.”

“Are you unable to explain this document that you’ve annexed to your statement?” Ms Orr said.

“I’m unable to explain the detail of number seven. I’m sorry that I have neglected and not understood this particular detail,” Ms Loane said.

Counsel assisting, Rowena Orr QC, grills Ms Loane. Picture: Supplied

Ms Orr also was unable to gain the FSC’s position on reforms in the UK which seek to limit insurers’ ability to knock back claims with nondisclosure of information when the customer has acted in good faith.

“I want to put to you but I expect you’ll be unable to answer,” Ms Orr said, as she sought Ms Loane’s knowledge of UK reforms.“Are you aware of that?” Ms Orr asked.

“No I’m not,” Ms Loane said.

“Does the FSC have any view?” Ms Orr asked “I don’t have a view on that. I am unaware but I can certainly find out,” Ms Loane said.

The FSC code of practice has not been approved by ASIC, which would give it actual regulatory teeth, and the regulator has said the sector has much work to do to improve its code.

Ms Loane was also unable to explain the purpose of the $6 billion in commissions the life insurance industry pays to financial advisers.

“I really couldn’t say with certainty,” she said.

“These are commissions paid for to advisers for essentially selling their products.”

Ms Orr put it to her that “the whole point of paying commissions to financial advisers is to influence the advice they give”.

“It would certainly mean they are paying for their products to be sold, yes,” Ms Loane responded.

Ms Loane said a proposal to repeal the exemption of life insurance claims handling from the financial services act, which would require companies to act efficiently, honestly and fairly, was at odds with current FSC policy.

When Ms Orr asked whether Ms Loane believed life insurers should be subject to laws requiring staff to be adequately trained and competent, Ms Loane said: “I think you’re asking me the same thing.”

“No, I’m not,” shot back Ms Orr.

Ms Loane said claims handlers should be adequately trained and competent, but they should not be legally required to be so.

Despite the general insurance industry having a code of practice in place since the 1990s, the life insurance sector only launched a code for its own sector last year after an ASIC review of the sector found sky-high claims rejection rates and worrying surveillance and claims handling tactics.

“Why did it need a review to tell it a code was appropriate?” Ms Orr said.

“I don’t know the answer to that,” replied Ms Loane.

Ms Loane also said it was “quite possible” that the FSC should have had a code before this.

“You don’t think it would have been desirable to have a code in place before 2016?” Ms Orr asked. “Yes,” Ms Loane replied.

Although ASIC has threatened to take action against life insurers who continue to operate outbound call centres, Ms Loane told the commission the FSC believed the direct sale of life insurance through call centres and websites was “a legitimate product when done correctly”.

When Ms Loane was asked about outbound call centres, she said: “I don’t have a fully formed view of that at this stage.”

This was despite FSC member ClearView Wealth, through the company’s chief risk officer Gregory Martin, telling the royal commission that it was difficult to run an outbound call centre and remain compliant with the law.

Freedom Insurance chief operating officer Craig Orton told the commission the outbound model would have to be changed for it to remain compliant with the law.