Banking royal commission live: insurance hearings - 10 September

Insurance exec left speechless by toxic sales culture in his own company as massive potential criminal breaches revealed.

• ‘I’d sack them’
• Classic cornering techniques
• Commissions and compliance
• Financial incentives
• ‘Unconscionable conduct territory’
• An ‘attempt to minimise’
• ‘Completely unacceptable’
• 303,000 breaches
• A criminal offence
• 10,000 breaches
• Direct sales calls
• Downgrading sales
• No one claims
• Paying more, getting less
• An emotional pitch
• Gregory Martin, ClearView appears
• FOS disputes
• Consumer issues
• The big sell-off
• Approved product lists
• Life insurance commissions
• Westpac and Zurich
• Submissions from QBE, Suncorp, TAL
• IAG, Freedom, MetLife, MLC, NAB, and ANZ submissions
• Regulations and obligations
• Opening statement

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is conducting its sixth round of hearings, focused on insurance, in Melbourne. Follow the proceedings with us live from 9am each day.

4.30pm: Hearing adjourned

Here’s some of the things we learned in the first day of hearings on insurance:

• Independent life insurer ClearView Wealth has admitted to potentially breaching criminal anti-hawking laws more than 300,000 times.
• Clearview also faced questioning over whether it intentionally targeted its Your Insure-branded product to poor Australians differently to its approach in selling products to its usual, wealthier demographic. Counsel assisting Ms Orr asked why ClearView was emphasising the “emotional pitch” in its sales to poor customers, which differed in its approach to selling to wealthier customers that also emphasised the logic of taking life insurance.
• The commission heard of an aggressive sales culture in ClearView’s direct business. From 2013 to 2014 if a sales agent met 250 per cent of their fortnightly sales target, they got a commission of $8000.
• Sales agents were also widely using unauthorised scripts, which ClearView’s Gregory Martin agreed utilised “almost classic cornering techniques” to push customers into buying an insurance product.
• Across the industry, more than $6 billion in lucrative commissions had been paid to financial advisers for the sale of life insurance over the last five years by just 10 companies. Life insurers provided Ms Orr with an extensive list of conceded admissions and potential concessions of misconduct that she read out in the hearing room at the start of the day.

That’s for following the hearing with us today. We’ll be back on Tuesday to listen to more evidence about the insurance industry as its sales practices.

4.28pm: Another call

The commission now hears a recording of a customer with six kids who had earlier spoken to someone at ClearView about life and personal insurance.

The customer wanted to talk to the “boss” - likely his partner - and he was told there were no contracts, which was not true.

The customer also says he has trouble reading and writing.

Yet, the ClearView sales agent went on to sell a policy to him.

It’s a telling point on which to end the day, but commissioner Hayne

adjourns.

The hearing will resume at 9.45am.

4.16pm: Divisional tension

ClearView’s Mr Martin accepts there was a tension between what ClearView’s direct sales team thought was appropriate behaviour and what the compliance team thought was appropriate, and that there was a disconnect between ClearView Direct and ClearView in general.

“It went on unrecognised for some time… a number of years,” Mr Martin says.

Counsel assisting Ms Orr turns to objection handling procedures.

An internal ClearView workshop asks agents to handle objections at least three times, saying each time the agent increases their chance of selling by 50 per cent.

Mr Martin says this was an unfair sales practice.

Much of the objection handling was designed to get people to sign up immediately, he agrees.

An internal ClearView document lists possible objections and responses.

If a customer doesn’t want to add anything to their policy, the agent is directed to mention the cooling off period. If a customer wants the PDS re-sent, the agent is directed to say, “what I have gone through with you now is what you would have received in the post”.

Ms Orr wonders why not have a script telling the agent to send a PDS when a PDS is requested? Mr Martin: “It should have done.”

What about talking to their partner? The script asks “I am curious when you say you need to speak to your partner, what that might mean?” The script suggests instead empowering a customer to make a decision on their own without their partner.

Mr Martin thinks the customer should have been allowed to discuss with their partner.

4.06pm: ‘I’d sack them’

As Ms Orr attempts to table documents, Commissioner Kenneth Hayne sighs: “I am dyslexic by this late stage of the day, Ms Orr.”

It’s a rare interjection from the commissioner, who has been content to let counsel assisting question Mr Martin today.

But to the document, and Ms Orr reads out an internal email from the direct sales manager who writes “Mate, this is terrible. This is not a signed off script” and warns of a scripting clean up.

Next, ClearView’s head of contact centre delivery fires back, emailing about what he says is a disappointing display of behaviour.

The internal email chain shows the boss of the sales team backing the “hard work” of the sales floor, saying he was not in the office to “back” his sales floor staff, presumably by letting them use the unauthorised script.

What actions were taken against this manager in relation to an unauthorised script, Mr Orr wasnt to know. What follows is one of the afternoon’s more telling exchanges.

“Not much was done,” Mr Martin concedes. “A warning, and that was about it.”

“A warning. Was that an appropriate response, Mr Martin?”

“No.”

“What should have been done?”

Mr Martin is struggling for words.

“This is very serious,” he says, clearly exasperated with his own organisation.

“I struggle with the whole culture that surrounds this, to be quite honest.

“As you said, this represents a culture withing ClearView Direct that was a full-on sales culture without much regard for customers … or in fact... [he struggles for words again] ... the thing I find even … We didn’t make money by doing this stuff. This is sales for sales, without an economic reward for it. It’s just..”, he says shaking his head.

“I’d sack them.”

“It led to very poor customer outcomes, didn’t it, Mr Martin.”

“Yes, yes,” he says, emphatically.

3.58pm: Classic cornering techniques

Some ClearView sales agents were using unauthorised scripts in their phone sales calls, the commission hears.

The scripts had three different forms of “close”: the “is it fair enough” close, the “partner” close, and the “I want to read it in black and white” close.

Mr Martin offers that he was “appalled” by them. He agrees they were three ways of managing customer objections.

For example, the “is it fair enough close”?

The script asks: “is the dollar figure affordable”, “did you like the benefits”, and “will your family benefit”, before asking if the customer would like to proceed to purchase.

Also the “partner” close:

“Will your partner object to this wonderful gift that you chose to give to them in the event that you were around to take care of them any more? Can you please confirm you would like to proceed to purchase?”

And the “I want to read it in black and white” script, which mentions that it takes three to five working days for a customer to receive their documents in the mail and they are encouraged to read them “because there’s nothing malicious in it that would stop you from having cover with ClearView”.

Mr Martin is clearly unimpressed.

He says the techniques are “almost classic cornering techniques” where “you get somebody to say yes, yes, yes and sort of corner them into a purchase”.

He agrees it was inappropriate.

He agrees there was an assessment that the script was widespread and frequent.

3.50pm: Direct debit

Ms Orr turns from bonuses to the culture within ClearView Direct that encouraged aggressive sales tactics.

She raises the “injury cash” product scripts that ASIC looked at, which tried to get customers to disclose enough information about their life to build trust and need.

What does it mean to “build need”, she asks Mr Martin.

ClearView’s Mr Martin says this means getting a customer to turn their mind to their insurance needs.

Sales agents are asked to recap on what was important for the customer, linking them to the product, such as mentioning their children or partner. Mr Martin says it was to reinforce the reason that the customer had brought the product.

The script asks, “Can I confirm your direct debit details?”

Ms Orr wonders why the word “confirm” was used when something was being asked for for the first time. Was it to perhaps to convey an impression something had already been done and was just being confirmed? “Could you provide me with your direct debit details,” she asks.

Mr Martin: “That probably could be better wording.”

The scripts don’t tell the customer that the first payment will be debited within 48 hours until after the customer has already provided their payment details.

Mr Martin says this is “curious” and it “would have been better to discuss the whole thing upfront”.

3.44pm: No breach disincentive

The average proportion of remuneration was 32 per cent variable and 68 per cent fixed, Mr Martin says.

ClearView thought its commissions were an important feature in attracting direct sales staff. Mr Martin says this was not a desirable structural feature of the commission model.

By early 2017 ClearView had concerns about whether the balance between fixed and variable remuneration was working, Ms Orr suggests.

The new commission structure was not resolving the issues with poor sales agent behaviour by early 2017, Mr Martin agrees.

He agrees that the commission structure had a minor disincentive for compliance breaches.

3.39pm: Commissions and compliance

In March 2016, ClearView moved to a more complex commission structure.

The company was trying to wind back incentives and encourage sales agents to write better business.

There were some extra factors that went into commission; a quality assurance rating and rates of cancellation.

An agent was only eligible for commission if they wrote a certain amount of annualised premium and had to sell a certain number of policies per fortnight.

Agents had to have 70 per cent of calls that had no issues - but this was cut to a quality assurance rating of 60 per cent as the company toughened up its quality assurance requirements.

Ms Orr: “To counterbalance that, you then dropped the score that was required from 70 to 60 per cent?”

Mr Martin: “I would not have done that myself.”

Also, if an agent had written business that had more than 17 per cent cancel from inception rate, they would not have received a commission for the next fortnight, although the figure was 27 per cent for ClearView.

More than a quarter of people to which the ClearView sales agent sold policies could cancel without affecting the agent’s eligibility for commission. Mr Martin says this was not acceptable.

3.33pm: Financial incentives

Senior counsel assisting the commission Rowena Orr QC suggests the compliance issues in 42 phone sales calls ASIC looked at were representative of broader compliance issues for ClearView. Mr Martin accepts that this was the case. He agrees these were issues ClearView still struggled with even after the engagement of ASIC.

He accepts that drivers included remuneration and a culture that tolerated aggressive sales practices and an inadequate quality assurance program in ClearView Direct.

Ms Orr turns to bonuses.

ClearView sales agents received a fortnightly bonus that was a percentage of sales.

From 2013 to 2016 if a sales agent met 100 per cent of their sales target they got a commission payment of $600 to $850 a fortnight.

From 2013 to 2014 if a sales agent met 250 per cent of their fortnightly sales target they got a commission of $8000.

“Do you think that was driver of inapropriate behaviour, Mr Martin?”

“It was definitely a contributor to it, yes”.

In August 2014 the $8000 was cut to $5015 a fortnight.

Why, Ms Orr wants to know.

“Was that in recogniation that the $8000 possible commission was driving poor behaviour by the sales agents?”

The afternoon’s longest silence follows.

Mr Martin eventually says this was to “bring back some of the excess” in the system

And that “excess” was “incentivising agressive sales tactics to make as many sales as possible, at whatever cost, wasn’t it,” Ms Orr puts it to him.

“Yes”.

3.28pm: On their ‘P plates’

The commission sees ClearView internal documents, showing the Feb 2017 results from the direct risk and compliance committee.

The document separates “flagged agents” who were new or on their “P plates” or agents who had had breaches in the past .Up to 80 per cent of their calls would be monitored.

The other agents were known as standard agents and monitored less often.

The average quality assurance score for standard agents was 69.72pc and for flagged agents it was 69.22 per cent.

The breach rate for flagged agents was 27.94 per cent and for standard agents it was 20 per cent.

Ms Orr suggests the agents were still committing breaches of the anti-hawking provisions.

“They weren’t ticking all the boxes,” Mr Martin admits.

He says the breach rate was “very high” and “completely unacceptable” and that they were one of the events that triggered the wind-up of the business.

3.22pm: Breach rates

The ClearView head office and its legal and compliance team then did their own review of the calls.

An internal email says that 40 per cent of the total sales calls included agent conduct that could be construed as misleading, deceptive or unconscionable, all potential breaches of the ASIC Act.

Mr Martin had received the email and recognised there could be problems, we hear. So he sent the email on to managing director Simon Swanson, saying it was unclear how the results might reflect a sample of calls to more affluent postcodes.

The 42 calls identified by ASIC were for indigenous postcodes and for the “injury cash” product in particular.

Mr Martin had emailed to express his concerns these were broader problems that were permeating sales by ClearView across the board.

Mr Martin accepts that the behaviour by ClearView sales agents in the 42 calls was “deeply problematic”, and that in some calls the sales agents were engaging in misleading and deceptive conduct, and in some calls unconscionable conduct.

The issues in the calls were representative of broader compliance issues for ClearView, he agrees.

ClearView had set up a direct compliance forum in February 2014 and it was clear that there was a level of breach.

The company had a target breach rate, and was trying to keep below a 4 per cent breach rate.

Why 4 per cent, Ms Orr wants to know.

Sales calls are a human process, and there would be new agents sometimes, so mistakes would happen, Mr Martin explains.

A zero breach rate “is an aspirational thing”, he says.

Mr Martin says he accepted that there would have to be some level of breach, but not to this level. The breach rate was higher than 4 per cent in the first quarter the forum operated, he says.

3.15pm: ‘Unconscionable conduct territory’

The commission sees an email chain between ClearView staff that suggests only 18 of the sample of phone calls had an issue.

According to the email, six of the 18 could be determined as the customer potentially being unaware of taking out the product, while two of the 18 fall into “unconscionable conduct territory which will raise the ire of ASIC”, with one customer having financial difficulty and another on a disability pension and had trouble reading and writing.

Ms Orr: “What do you make of this?”

Mr Martin: “The word appalling comes to mind.” He says the language used is almost to minimise the consequence of the calls.

3.09pm: ‘An attempt to minimise and not addreses the issue’

ASIC raised more issues about ClearView sales practices, such as misrepresentations about payment arrangements.

One issue was a failure to clearly explain when the first premium would be due. ASIC was also concerned about quoting premium prices in weekly terms, rather than monthly or yearly.

ASIC was concerned that ClearView was telling customers premiums never go up, when the company was entitled to change premium rates at any time upon giving notice.

Another issue was ClearView putting pressure on customers to sign up immediately, with agents persisting with their sales pitch when the customer said they wanted to read and consider the PDS. Sometimes customer information was collected before their agreeing to buy the product.

ASIC also saw ClearView failing to tell customers policies didn’t apply to pre-existing conditions.

ClearView did its own review of the 42 sales calls that ASIC had looked at, listening to many of the calls for the first time. The company had only looked at 10 of those calls before and only a small number failed the quality assurance processes. When the calls were reviewed again ClearView found three breaches that hadn’t been detected previously.

ClearView’s group compliance manager asked an incident report be prepared.

The incident report says all 42 calls were assessed and 37 had file notes against them, which did not necessarily indicate a breach.

“I think it was an attempt to minimise and not addreses the issue,” Mr Martin says.

Even Ms Orr seems surprised by this. “An attempt to minimise, in a breach notification form?” she queries.

“Yes,” Mr Martin responds

3.02pm: ‘Completely unacceptable’

Senior counsel assisting the commission Rowena Orr QC turns to the sales practices of ClearView, particularly the “injury cash” product.

ASIC had written to ClearView warning the company it was pressuring consumers and might be breaching its duty to make sure financial services are provided efficiently, honestly and fairly, and that the conduct might contravene consumer protection provisions in the ASIC Act.

Some of ASIC’s concerns related to sales agents misrepresenting whether a customer was committing to buy an insurance policy, with sales agents using language to the effect that there were no contracts.

Ms Orr again plays a recording of a call made by a Your Insure agent.

The agent reads, at a fast pace, a script asking if the customer wanted to proceed with an application for the policy to see if he was eligible. The customer does not understand and the agent repeats the question.

The sales agent did not make it clear that the customer was in fact committing to purchase an insurance policy.

ClearView’s Mr Martin says this was “completely unacceptable”.

2.55pm: We made a mistake

Senior counsel assisting the commission Rowena Orr QC is flying.

“Why did ClearView breach the anti-hawking provisions between 300,000 and 303,000 times in that three-year period,” Ms Orr asks.

Mr Martin: “We just got that wrong. We made a mistake.”

He admits ClearView Direct did not understand how the anti-hawking provisions worked.

Ms Orr: “This was a critical thing for a direct life insurance sales business to understand, wasn’t it?”

Mr Martin agrees.

She also suggests it was critical for ClearView to make sure it was not breaching the law.

Mr Martin: “If we had known it was in breach we would have fixed it straight away and/or reported it to ASIC.”

But Ms Orr suggests that there was increasing awareness towards the end of the period that the company was breaching the provisions.

Internal ClearView emails are displayed from February 2017.

The email warns that the quality of risk and compliance awareness and oversight from the direct business was “concerning”, with the dismissal of one agent who had four anti-hawking provisions a “more severe” event than was portrayed.

Mr Martin agrees that staff managing the ClearView Direct business were not treating breaches of the anti-hawking provisions as things that needed escalating.

4.49pm: 303,000 breaches

ClearView wrote another letter to ASIC about phone calls from January to June 2004, where there were an extra 44,000 calls where ClearView could not confirm it hasn’t breached anti-hawking provisions, although it could not say whether the customers answered the phone.

ClearView thought the number answered would be 22,000 to 25,000.

“All up, by early May 2017, ClearView had estimated that it had breached the anti-hawking provisions - which as we’ve discussed, was a criminal offence - somewhere between 300,000 and 303,000 times, over a period of just over three years,” Ms Orr says.

“Yes that’s correct.

“That’s a bit different to the figure you gave me when I asked about this earlier.”

Mr Martin says that earlier when he suggested a 10,000 to 12,000 figure he was only referring to sales.

Mr Martin accepts that there were between 300,000 and 303,000 breaches by ClearView of these criminal provisions over the three-year period, and that is the number of breaches the company has notified ASIC about.

2.44pm: Contravening calls

Senior counsel assisting the commission Rowena Orr QC suggests that ClearView didn’t explicitly acknowledge a breach of the anti-hawking provisions in relation to Bupa customers, in a letter to ASIC.

ClearView’s Gregory Martin agrees that is what the letter says.

ClearView acknowledged in the letter it had made unsolicited calls to customers and had not complied with the anti-hawking provisions, but it did not say anything about how many customers were affected apart from the 5500 customers who were called because their details were bought.

ASIC wrote a reply letter warning that no details had been provided about the number of affected customers from Bupa or another database.

A meeting between ASIC and ClearView in April 2017 took place, and ASIC said it needed to know the extent of the possible contraventions.

Mr Martin agrees he said to ASIC in the meeting he thought there may have been around 105,000 breaches with the Bupa customers or probably more.

ClearView then wrote to ASIC to estimate the number of customers who received contravening calls.

The letter itemised 244,000 Bupa customers, 6000 Bradford Exchange customers, 9000 value add customers and nearly 2000 Greater Data customers.

So ClearView assessed 261,602 customers had received ClearView phone calls in circumstances where ClearView couldn’t verify it had met the requirements of the anti-hawking provisions.

2.30pm: Meetings with ASIC

ASIC first raised concerns with ClearView about potential anti-hawking provision breaches in April 2016, after complaints.

ASIC asked how ClearView got details of the customers it called.

ClearView sent a letter to ASIC detailing the ways it identified its customers.

Then there was a conference call where ASIC expressed multiple concerns about possible anti-hawking contraventions, saying it wasn’t clear that customers were always being given a PDS before being bound to acquire the product, and it wasn’t clear customers were explicitly being offered a chance to be put on the Do Not Call Register, and consumers weren’t being given a chance to have the PDS information read to them.

ClearView said at the time that the phone calls it made were solicited.

Mr Martin agrees that was an incorrect belief.

ASIC reviewed audio recordings and told ClearView it thought the company might have been failing to comply with anti-hawking provisions on a systemic basis for at least three years.

ClearView wrote to ASIC to report a breach of the Corporations Act over the phone calls, saying it was continuing to review the matter, and that any failure to comply with the anti-hawking laws were rectified as it had updated its call scripts, retrained its sales agents and amended its quality assurance checklist.

Before this ClearView’s scripts didn’t reflect the requirements that needed to be met in an unsolicited call and they should have, Mr Martin agrees.

2.23pm: A criminal offence

How did ClearView breach anti-hawking provisions, Ms Orr QC wonders?

ClearView’s Mr Martin says the customers had not sufficiently opted in to receive a phone call.

Breach of the anti-hawking provisions is a criminal offence, he is reminded.

How did ClearView work out who it would call in order to sell life insurance?

Bupa controlled a list that detailed, each month or quarter, customers who were available to be called, to make sure customers weren’t being pestered. The list was compared to the Do Not Call Register, Mr Martin says.

The other method was lead generation channels, such as through an online competition or other outband lead generation telephone means, he says. They would ask customers if they were interested in a call, and if so the details were transferred to ClearView.

So the list of Bupa customers is given to ClearView and then they’re emailed a copy of the product disclosure statement and get a call from ClearView to promote the products. Sometimes ClearView used a third-party that contacted a potential customer and asked for their consent. And sometimes someone registered their details to enter an online competition and opted in to being called about life insurance.

ClearView purchased customer information from third parties and then contacted them.

Clearview's Gregory Martin is the first witness to appear at the insurance round of the financial services royal commission hearings in Melbourne.

2.16pm: 10,000 breaches

ClearView’s Gregory Martin also mentioned in his witness statement a change in the operating environment for the direct life insurance business.

For example, the expansion of the Do Not Call register, increased competition for direct life, increased scrutiny and changing community expectations.

The company didn’t appreciate the consequence of those factors, he says, otherwise it might never have started the direct life selling business.

The company had seen historical sales rates and expected it could make similarly large numbers of sales, but the company didn’t make changes to reflect the changing operating environment.

ClearView was one of six insurers whose conduct was examined by the ASIC review, which looked at outbound sales calls and found these were often associated with poor sales conduct and increased risk of poor consumer outcomes.

Issues raised in the report include ClearView’s compliance with anti-hawking provisions that allow a customer to be placed on the Do Not Call register and include giving a customer a PDS before buying.

ASIC says a phone call is unsolicited unless it takes place in response to a positive, clear and informed request, Ms Orr reminds him.

Mr Martin agrees ClearView breached the anti-hawking provisions.

Something like a quarter of a million calls were made to Bupa customers, and out of the 32,000 policies that were sold about 40 per cent were Bupa customers, and potentially all of those were in breach of the provisions because there wasn’t positive affirmation that customers wanted to be called, Mr Martin says.

So ClearView breached anti-hawking provisions about 10,000 or 12,000 times, Mr Martin says.

This covered the period from late 2013 to the end of 2016.

2.08pm: ‘Customer disturbance’

Senior counsel assisting the commission Rowena Orr QC has returned to ask more questions of ClearView’s Gregory Martin.

ASIC has raised concerns about whether ClearView was complying with the law over unsolicited sales, and whether it was engaging in unfair sales practices.

ClearView has developed a customer remediation program that will be complete by the end of the year, Mr Martin says.

This will cover more than 32,000 life insurance policies sold from 2014 to 2017.

What does it mean that life insurance is a “grudge purchase”, Ms Orr wants to know

Mr Martin puts it that “people know they should do it” but usually they need a bit of “motivation” from family and friends or others.

His witness statement says the life insurance usually needs some level of “customer disturbance”, Ms Orr points out.

This means people being encouraged to think about the consequence of them dying or becoming disabled, he says.

How did ClearView achieve “customer disturbance” in direct sales?

Mr Martin says the company’s approved phone scripts challenged customers to think about what it would mean for their family if they died.

Where is the fine line between customer disturbance and pressure selling?

A “mild level” of disturbance, Mr Martin says, such as general questioning around what are the consequences for you or your family, is acceptable.

But the “emotional pitch” referred to in documents before lunch went “a bit past that” through to “pushing into pressure selling”.

A mild level of customer disturbance is necessary to get consumers to think about life insurance, he agrees.

1.39pm: ‘An almost endless chit list of misdemeanours’

Michael Roddan has summarised some of the key themes of counsel assisting Rowena Orr’s lengthy opening statement at the beginning of the hearings this morning.

As he reports:

The royal commission has painfully detailed an almost endless chit list of misdemeanours by the country’s scandal-ridden life insurance sector, including more than $6 billion of commissions for advisers in five years, out-of-date medical definitions, pushy sales culture, unsolicited and misleading sales calls and secret surveillance that further deteriorated claimants’ mental health.

Amid the mountain of alleged misconduct, counsel assisting the royal commission Rowena Orr, QC, told the hearing more than $6 billion in lucrative commissions had been paid to financial advisers for the sale of life insurance over the last five years by just 10 companies. This included $1.16 billion for National Australia Bank’s MLC business, almost $500 million by Commonwealth Bank, nearly $600m by Suncorp, $750m by Westpac, $700m for Hong Kong-based AIA Group, $330m for ANZ’s OnePath business, $400m for wealth manager AMP and $840m for Japan’s TAL.

The commissions come even despite a push through the Future of Financial Advice laws in 2013 to crack down on commissions. Until January 1 this year commissions for life risk products were exempt from the ban on conflicted remuneration, so insurers could continue to pay financial advisers upfront and trail commission.

1.03pm: ‘Not mutually exclusive’

Ms Orr pushes Mr Martin on whether ClearView will stop selling accidental death cover

Mr Martin says he needs to understand what ASIC means in terms of “value” of the cover, but says he did not like the phone call recording that was just played, where a representative was selling the cover to someone who couldn’t get life insurance.

ClearView hasn’t made a decision on whether it will stop selling accidental death cover and will have to review it, he says.

How can ClearView show that the product has value? Has the company considered the ASIC report that has been out for a couple of weeks?

Mr Martin has been busy preparing for the royal commission.

“Well, the two are not mutually exclusive, are they, Mr Martin?” Ms Orr asks.

“But you’re unable to say anything further about the position that ClearView will take in relation to the sale of accidental death products going forwards?”

Mr Martin does not know at this stage.

Mr Martin: “The intention of ClearView is not to offer rubbish products to the market. So if that’s what they deem to be, that will be stopped.”

The hearing is adjourned for lunch until 2pm.

1.01pm: Direct sales calls

Senior counsel assisting the commission Rowena Orr QC wants to explain the “downgrading” sales practice, so she plays an audio recording of a sales call.

The customer requests life insurance but the marketer says she can’t access the insurance because of her heart condition.

Then, in an upbeat voice, he outlines the payments available through an accidental death policy and an injury cash policy.

Ms Orr wonders if Mr Martin has read ASIC’s report on direct life insurance?

He has only read the executive summary.

“You knew that we were going to ask you questions about ClearView’s direct sales of life insurance?” Ms Orr pushes.

Mr Martin is aware that ASIC expressed concerns about downgrading conduct in connection with the sale of accidental death policies. ASIC said there where limited circumstances where downgrading was appropriate, but it could result in consumers buying cover that did not meet their needs.

ASIC also took the view that accidental death policies offfered limited benefit to consumers. ASIC said companies should stop selling them unless ASIC can show there is a benefit.

Will ClearView stop selling accidental death insurance, Ms Orr asks.

The company has ceased the products it was selling through the direct channel.

12.49pm: ‘Downgrading’ sales

ClearView offers accidental death cover to someone who has an application for life cover declined.

Is the company doing a service to the customer, counsel assisting Rowena Orr QC wonders?

“That is the intention,” ClearView’s Gregory Martin says.

“So you proceed to offer them a cheaper inferior product?” Ms Orr wonders.

Mr Martin does not accept that. He agrees the premium is cheaper.

Ms Orr suggests that when a customer is refused life insurance for medical reasons, advisers attempt to sell them an inferior product to life cover for a cheaper premium, and Mr Martin agrees.

Mr Orr suggests this is a “downgrading” sales practice. Mr Martin disagrees - but agrees the company is still trying to achieve a sale.

12.45pm: No one claims

Today ClearView offers an advised retail life insurance business, an advised wealth management business and a financial advice business.

The “injury cash” and funeral products are no longer sold. Life cover, trauma cover and accidental death cover are sold, ClearView’s Mr Martin agrees.

Has accidental death cover been very profitable for ClearView, Ms Orr QC wonders.

Mr Martin: “Define profitable?”

He agrees that the claims ratio has been a lower ratio, although the premiums are typically lower than equivalent full cover.

Does the company hold onto quite a lot of money it brings in for accidental death policy? It doesn’t lose much by paying out claims?

No it doesn’t lose much - but it has to pay admin costs, Mr Martin says.

The ratio of claims paid out to premiums collected over the last five years for accidental death cover has been 26 per cent. So ClearView keeps about three quarters of the money it makes from selling these products, Mr Martin agrees.

In 2014 the ratio of claims paid out to premiums collected was only 1 per cent.

“It’s because no one makes claims under the product isn’t it?” Ms Orr presses.

“The claims numbers are low,” Mr Martin concedes.

‘So the poorer people that you were telephoning were paying more money for a product of lesser value than the more affluent people you were planning to target with a superior product at a cheaper price?’ Counsel assisting the royal commission Rowena Orr QC.

12.33pm: Worse product, higher cost

ClearView had been proposing to move to selling a top-end professional product suite to a higher socio-economic demographic, at market parity pricing, with no guaranteed acceptance, Ms Orr QC summarises, after displaying an internal ClearView briefing.

So the new product was going to have market parity pricing?

Mr Martin says the market parity comment was meant to be market parity with advised products that were fully underwritten.

Direct products were usually more expensive than retail products, he says.

“They were designed to be accepted over the phone very quickly, and they were priced accordingly,” he says, explaning that direct products sold directly were usually more expensive than retail products.

“They’re more expensive but they’re of a lesser value, aren’t they. And they’re inferior products. That’s what this document tells us, Ms Orr suggests.

Mr Martin agrees the products are of lesser value.

Ms Orr summarises: “So the poorer people that you were telephoning were paying more money for a product of lesser value than the more affluent people you were planning to target with a superior product at a cheaper price?”

Mr Martin says that “in terms of loss ratios” that was true, but says that is similar to most products, due to economies of scale and the size of the premiums involved.

Would the community expect the life insurance products ClearView sells over the phone to be not be more expensive and lower value than the products sold to more affluent people? “I think most members of the public would not understand that terribly well.”

Would they be disappointed?

Mr Martin concedes they would be disappointed.

12.28pm: An emotional pitch

The commission sees another internal ClearView slide pack, proposing a new general advice model, moving to lower volumes and higher value.

The document lists the current model as sales to “low socio-economic demographic” with a “low cost per prospect” and an “emotional pitch”.

A lot of sales tend to be bought on a more emotional type reaction, Mr Martin says.

The proposed model in the document is a move to “higher socio-economic demographic” with an “emotional and rational pitch”.

Mr Martin agrees the company was going to appeal to more affluent people about the logic of buying life insurance.

“Why a different sales approach to poorer people than wealthier people”, Ms Orr wonders.

ClearView’s main business is advice and principal customers have full personal advice and understand what they’re buying, Mr Martin says.

The change in sales model was to try to move the direct model more into an approach where the company could explain why they were buying rather than making a brief emotional call, he says.

The company was moving to people who could afford a bigger premium, he says.

So the existing model pitched to poorer people products that were not competitive, had limited value and were of low quality and about to be scrutinised by the regulator, Ms Orr asks?

Mr Martin disagrees.

But Ms Orr says this was written by the head of direct sales at ClearView.

12.21pm: Increasing regulatory scrutiny

The commission sees another internal briefing from ClearView that proposes “pivoting to mid-market” and accommodating the needs of “mass affluent consumers”.

“We are proactively moving into this territory ahead of expected regulatory scrutiny of traditional direct products and sales practices,” the briefing says.

What’s the regulatory scrutiny, Ms Orr wonders?

ASIC was already making negative comments on funeral cover and issues of pre-existing exclusions, Mr Martin says. The market was getting more regulatory scrutiny, the business faced high cancellation rates, and life insurance is a long-term contract so the high cancellation rates suggested it wasn’t something they needed, he said.

12.16pm: ‘Lazy wording’

ClearView changed its business in late 2015 and 2016 to target a more “preferred” mix of customers, as it was concerned that the group was attracting customers of a lower socioeconomic group than was appropriate.

By the end of 2015 the non-Bupa business was cut back to less than 25 per cent of what it was before and a number of lead generation sources were cut, while the lead generation sources were told to focus on a higher demographic who could afford life insurance, Mr Martin says. ‘

The commission sees a document produced for the Direct Steering Committee at ClearView.

The briefing says the direct life market is maturing and competitive landscape changing rapidly, and the contestable market in low socio-economic bands being highly saturated leading to diminished returns.

Mr Martin said “low” could be lazy wording and the document should probably have said “lower”, as it did not make sense to target a business towards the lowest band.

The document suggests moving the ClearView brand into the “mid-market space”,

Mr Martin agrees it wasn’t easy to change this model.

He seems less assured than he was when he began giving evidence this morning.

12.10pm: ‘Lower, not lowest’

Why was ClearView’s Your Insure business marketing to customers who weren’t interested, counsel assisting Ms Orr wonders

Mr Martin says the business didn’t intend to do that, but that it did get leads generated from them from a market that wasn’t interested.

What does it mean that the demographic was too low?

Your Insure was using third parties to generate leads, but there may have been some marketing to a demographic that couldn’t afford life insurance, Mr Martin said.

Your Insure was trying to sell insurance to people from a lower socio-demographic bracket, Mr Martin agrees.

“So it was poorer people that were being targeted by Your Insure?” Ms Orr puts it to Mr Martin.

“Lower, not lowest”, Mr Martin says. “There was no point in selling customers who couldn’t afford the product or were too poor.”

The target group of customers was meant to be a strata below “middle Australia” but the group was concerned that products were being sold to people who couldn’t afford it.

So ClearView decided to close the business in December 2015 only 14 months after it started.

The other sales centre in Parramatta was also having problems and struggling to make a profit.

12.06pm: Customers who ‘weren’t interested’

From late 2010 ClearView began selling life insurance online and by outbound telephone calls, the commission hears.

The move into online and phone sales resulted in modest sales, initially.

So ClearView moved to a more substantial direct life insurance business including to non-Bupa customers.

ClearView set up a new sales centre and a new sales and marketing team in 2013, and by 2013 the centre was starting to have some success.

The company expanded the direct life business through a sales centre in Melbourne called Your Insure, but it proved problematic.

The business had high “cancel from inception rates,” where people took out a policy and cancelled shortly thereafter, ClearView’s Mr Martin says.

There were also cases where the customer gave their bank details but there were insufficient funds, or the bank details were wrong, or the customer would cancel the contract.

The business had high policy “lapse rates” where a customer paid one or two premiums but then contacted the insurer to cancel.

Why were customers cancelling?

Mr Martin guesses that the group was marketing to consumers who “weren’t interested in the products”, perhaps it was marketing to a demographic that was “a little bit too low for those products”.

So ClearView was losing money on the business.

12.00pm: Gregory Martin, ClearView appears

The first witness to appear at this round of hearings is ClearView chief actuary and risk officer Gregory Martin. He has been at the group since 2011.

His job involves the broad financial management of the company and oversight of the risk management framework.

ClearView was initially owned by NRMA then sold to MBF Life which was taken over by Bupa, the commission hears.

The company is a “captive insurer”, marketing its products to members of those groups.

Then in 2010, ClearView was bought from Bupa by a company known as ClearView Wealth. ClearView entered into a 10 year distribution agreement with Bupa to provide life insurance products, and Bupa would refer members to ClearView Group financial advisers if they needed financial advice.

Initially products were sold via direct mail and there was advertising in brochures in Bupa branches or mailouts, Mr Martin confirms for Ms Orr.

11.42am: FOS disputes

The Financial Ombudsman Service (FOS) told the commission it had 1307 disputes over life insurance products in 2016-17, mostly over decisions to deny a claim. In FOS’s view, some definitions have not kept pace with current medical standards, while community expectations also differ from the highly technical definitions in policies.

ASIC said it had taken enforcement action on 78 occasions since 2008 over life insurers, including action over for misleading ads.

ASIC also arranged customer remediation programs by life insurers on 16 occasions - including finding ClearView engaged in high pressure sales tactics, a review of Suncorp’s compliance systems that resulted in 849,000 policyholders being refunded about $23 million and a remediation program for CBA’s CommInsure life arm totalling $255,000 for 13 consumers.

The commission will cover case studies such as the treatment of mental health issues, the design of products and the role of super trustees in claims handling.

The hearing has a brief break and will return at 11.50am.

11.37am: Consumer issues

Consumer bodies told the commission consumers had a general lack of awareness about the life insurance they hold in super.

They also see over-insurance in super that erodes super balances.

Advocates warned of poor policy design for group life insurance, poor claims handling, or difficulties in going through the claims process without legal representation. For example indigenous customers had issues with proving their identity.

‘Claim fatigue’, where consumers withdraw claims before they are determined, was seen as a significant issue.

Exploitative practices in life insurance sales were an issue, such as through advertising, marketing or sales techniques. For example, misleading ads, cold calling, pressure selling, or an over emphasis on cooling off periods as a time for consumers to read a product disclosure statement.

A lack of protection over unfair policy terms can cause claim shock during traumatic times for consumers, advocates said.

Individuals with mental health issues can face challenges securing coverage, advocates warned.

11.31am: What types of life insurance do Australians buy?

The most commonly sold type of life insurance was life cover at 38 per cent of sales, followed by income protection at 25 per cent, total and permanent disability (TDP) at 21 per cent and trauma cover at 16 per cent.

Ms Orr then tenders a series of witness statements to the commission.

She then turns to the experience of life insurance consumers. The commission has received 681 submissions about life insurance.

Public submissions raise issues with delays and difficulties in claims handling, the sale of inappropriate products, and issues with premium costs. Consumers were also concerned about the treatment of mental health, such as being denied coverage or benefit, facing excessive premiums, or concerns over independent medical examinations.

Consumers also said they were refused cover because of unrelated pre-existing injuries or conditions, or forced to pay high premiums.

11.24am: The big sell-off

Ms Orr turns to who Australians buy life insurance from.

The largest of the insurers by premiums paid were TAL and AIA.

TAL and AIA also had the largest number of new policies sold.

Ms Orr considers changes in ownership in the life insurance industry.

Zurich has acquired Macquarie’s life insurance business, while NAB sold about 80 per cent of its life business in MLC to Nippon Life for $2.4 billion and will sell the remaining stake. CBA announced the sale of its life insurance businesses in Australia and New Zealand to AIA for $3.8 billion. ANZ announced the sale of its Onepath Life to Zurich for a total $2.85bn. Suncorp agreed to sell its Australian life business to TAL for $725m after writing down the value of the business by $880m.

Total proceeds from the sale of life companies to foreign companies by Australian financial institutions over the past two years is $10bn.

11.19am: Approved product lists

Ms Orr turns to approved product lists: how do companies pick which products are on approved product lists for financial advisers?

Sometimes the companies only include products for their aligned life insurer, while in other cases, even if other insurers were on an approved product list clients’ funds were still directed to the products of the aligned life insurer, Ms Orr said.

What about non-monetary benefits?

Some life insurers told the commission they organise conferences or roadshows for financial advisers. Eg TAL operates a professional development program.

Several life insurers make sponsorship payments to financial advice entities to pay for education and training.

11.15am: Life insurance commissions

Ms Orr now turns her focus to the life insurance industry.

Life insurers in Australia earned $18.3 billion in direct premiums in the year to March 31 and the value of total assets held by life insurance companies in Australia was $230.1 billion, she tells commission.

How do Australians buy life insurance?

In the direct channel, an insurer sells a life insurance product directly to the consumer. In the retail distribution channel, life insurance products are sold through financial advisers. In the group distribution channel, a super fund or employer buys a group policy for fund members or employees.

For calendar 2017, the overwhelming majority of policies were sold through the retail channel; about 84 per cent of policies sold that year. The direct channel was about was about 15 per cent and group made up less than 1 per cent.

But if you count the number of policies held in super funds, the overwhelming majority of life insurance products are held through super funds: more than 70 per cent at August last year.

Ms Orr considers the amount of premiums paid. Group sales represent 40 per cent, retail 55 per cent and direct 5 per cent. Often directly sold policies had fewer features and more exclusions than those sold through financial advisers.

Ms Orr recalls the second round of hearings on financial advice, that showed some remuneration structures for financial advisers could lead to poor advice, and also covered the ban on conflicted remuneration and its exceptions.

Until 1 January this year, commissions for life risk products, which do not have an investment focus, were exempt from the ban on conflicted remuneration. So insurers could continue to pay financial advisers upfront and trail commission.

Over the five-year period the commission asked about, here are the commissions paid:

• Zurich $113m
• AMP $380m
• MetLife $390m
• CBA $460m
• Suncorp $590m
• Westpac $640m and $112m in grandfathered commissions
• AIA $690m
• Onepath $830m
• TAL $840m
• MLC $1.16 billion

Totalling more than $6 billion in about five years.

Caps have now been imposed on the amounts life insurers can pay in upfront and trail commissions - now 80 per cent for upfront commissions, falling to 60 per cent in the next two years.

It remains to be seen whether falling commissions will be reflected in premiums customers pay, Ms Orr said.

10.57: Westpac and Zurich

Ms Orr turns to Westpac.

Westpac said its general insurance arm breached code obligations for the timeliness of updating customers on the progress of home and contents claims. It found cancellations of these policies were refunds were not sent to customers in 15 business days as required, with about 8600 customers refunded $829,000.

Westpac admitted the non-payment of additional benefits to home and contents insurance clients.

Westpac said it incorrectly applied premium loadings to 216 customers and has refunded $611,000.

Now Youi. Youi said it failed to tell customers that they could seek a review of their claim after a catastrophe or disaster and failed to provide information about complaints handling.

Youi said it engaged in misconduct by failing to send renewal notices to customers within 14 days before the expiry of their policy - customers were refunded $90,296.

Youi charged some customers premiums without consent, and has refunded $14,000, and over-collected the Fire Services Levy.

Zurich admitted errors in communication with customers and misconduct over claims handling, as well as misconduct over how it applied the terms of its policies.

10.52am: Submissions from QBE, Suncorp, TAL

Ms Orr turns to QBE.

Other insurers have admitted misconduct or conduct falling below community standards to the commission, but QBE made no such admissions.

“However, it identified a number of issues in relation to insurance,” Ms Orr says with a hint of scorn.

QBE acknowledged that its gap protection had been sold in car dealerships where there might not have been a gap, the cover might have duplicated existing cover or the cover might have provided more insurance than needed

About 28,000 customers were affected and customers are set to be paid $15.9 million.

QBE said FOS found systemic issues, such as a failure to implement FOS recommendations in a timely manner or to communicate with customers in required time frames.

More than 1520 open complaints had overdue responses.

QBE said it over-collected the fire and emergency services levy from Victorian customers due to an admin error, refunding $1.1 million to 11,000 customers.

QBE said VCAT found it had discriminated against a customer, who bought travel insurance for an overseas school trip but was diagnosed with depression and decided not to attend. QBE denied the plan on the basis of a mental health exclusion. VCAT ordered a payment of $19,000 in compensation.

REST super fund said it had found members who were eligible for automatic reinstatement of the fund’s insurance cover did not have their cover reinstated.

Suncorp said FOS found systemic issues with its provision and handling of insurance, such as delayed dispute resolution, failure to provide information about internal dispute resolution, delays in implementing FOS-negotiated settlements, claims handling delays and failing to tell customers about their disclosure duty. It also found medical conditions in its life insurance policies that needed to be updated.

Suncorp said a customer had alleged surveillance made their mental health worse and then Suncorp found inconsistencies in the way its surveillance policy had been applied.

Suncorp said it would remediate customers for add-on insurance through car dealers, paying $17.2 million to customers.

Suncorp was hit with infringement notices over misleading TV and online ads about the savings customers might make by moving to AAI.

TAL admitted misconduct in its sales practices and in misleading TV and online ads.

TAL admitted its misleading and unsolicited sales calls, with about 17,000 leads that may have breached anti-hawking provisions. TAL said about 3.5 per cent of its monitored sales calls from 2012 to 2017 were misleading and 0.2 per cent involved unconscionable conduct such as selling to vulnerable people.

TAL said that for the life broker business it bought in 2013, about 15 per cent of monitored calls in the first year were misleading, which it attributed to a sales-oriented culture where staff were paid lower fixed pay and higher bonuses.

TAL said it had been underpaying and overpaying income protection claims.

TAL said its blanket mental health exclusions fell below community standards.

10.39am: IAG, Freedom, MetLife, MLC, NAB, and ANZ submissions

Ms Orr turns to Freedom Insurance Group.

Freedom said its representatives tried to sell insurance products to vulnerable customers, some with disabilities, and may have breached anti-hawking provisions.

Freedom said some customers had tried to cancel insurance policies and faced delays or were still charged premiums.

Freedom said some customers complained after they did not agree to buy a policy or did not agree to direct debits.

IAG acknowledged issues with selling add-on insurance, complaints handling, and failing to provide information in product disclosure statements over how a premium was calculated.

IAG said it had hiked premiums on home building policies to levels that the office of the Fire Services Levy Monitor in Victoria thought were unreasonably high - IAG undertook a refund program.

IAG’s Swan Insurance had issues with add-on insurance such as poor product design and pricing, low claims payments and unfair consumer outcomes - the group is set to refund about $39m to 68,000 customers.

IAG found payments that may have exceeded the maximum allowable commission amount, totalling more than $6.79m.

MetLife Insurance said seven court judgments had been made against it that may constitute misconduct while it had 20 adverse FOS rulings.

MLC said it had examined its claims handling and an independent expert found 26 cases where it did not properly interpret the correct policy term or exclusion, and another 55 cases where the claims management process was not efficient, honest and fair.

MLC said over the last decade it has faced about 245 legal proceedings, with 1890 complaints brought against it in FOS. MLC also reported 40 breaches either to ASIC under the Corporations Act or to APRA under the Life Insurance Act over the same time.

MLC said there was a limited customer value in the death cover components of its products.

NAB acknowledged problems with incorrect death and total and permanent disability tests, resulting in some members incorrectly having claims rejected or denied, receiving lower payments, or being told they were not eligible for cover when they were - about $2.3m has been paid to members or beneficiaries affected.

ANZ admitted it engaged in misconduct when it delayed processing and allocating to members $13.7m that was the proceeds of a class action of which its division Onepath Life was a member - this affected 13,629 members.

ANZ paid compensatory interest of over $1.5m.

ANZ admitted a price error for the Onepath Master Investment life insurance policy, affecting 60,000 members with $600,000 compensation paid.

ANZ said 1640 policyholders were not paid stamp duty when their claims were settled.

Senior counsel assisting Rowena Orr makes her opening remarks to the financial services royal commission hearing in Melbourne. Picture: Supplied

10.23am: Insurer submissions

Ms Rowena Orr turns to misconduct and conduct below community expectations that insurance companies have already acknowledged in submissions to the commission.

AIA Australia said it had failed to provide notices to up to 1000 customers, which meant they may have been unaware their life insurance had been cancelled for the non-payment of premiums.

AIA also said it had engaged in misconduct by overcharging premiums. In 2009, AIA realised premium payments were being deducted twice from customer credit cards as a result of a system error and the total amount overcharged was $775,000. AIA said 500 further customers were charged double the premium because of another system error.

AIA said it incorrectly calculated pre-disablement income of policyholders making claims, leading to underpayments of more than $3.9 million.

AIA received 300 complaints about its consumer credit insurance sold directly through a call centre and through partner websites, and a number of customers were unaware they had taken out the insurance.

AIA said some features of its funeral insurance products were not consistent with ASIC recommendations.

Allianz said it had overcharged policyholders who paid for insurance monthly by incorrectly debiting bank accounts after they reduced their level of cover. The issue affected 2500 customers who were refunded more than $650,000.

Allianz said 11,700 customers who took out consumer credit insurance policies through car dealers had been overcharged, with more than $1.8m refunded.

Allianz division AWP found an error in its product disclosure statement for credit card travel insurance, reimbursing more than $385,000 for 2700 customers who were charged in error a risk-based premium.

Allianz said it failed to respond to 6000 travel insurance claims within 10 business days and became aware of discrepancies between the amount paid on cancelling insurance and the amount payable.

Allianz acknowledged car dealership customers may have obtained insurance through a general advice model which was not suited to their circumstances. Allianz expects to remediate about $45.6 million.

Ms Orr now turns to AMP, which has already had a tough time at the royal commission.

AMP said authorised representatives had been recommending a customer cancel one AMP life insurance policy and replace it with another so they could collect the maximum upfront commission payable.

AMP said delays in its assessment of insurance claims may fall below community standards.

Clearview Wealth acknowledged sales agents had mis-sold insurance cover, with one customer being provided with false or misleading information, another customer being coerced and a third customer being sold a policy they did not understand.

Clearview said it had told ASIC it couldn’t verify it had been meeting anti-hawking requirements in the Corporations Act for more than 278,000 of its sales calls.

CBA said it had failed to meet community standards over CommInsure’s life insurance products.

An ASIC investigation found CommInsure’s trauma policies had medical definitions that were out of date with prevailing medical practice. CommInsure updated its medical definitions.

CommInsure searched for previously declined claims and paid more than 30 customers more than $4 million in total. CommInsure agreed to pay $300,000 for misleading and deceptive statements on its websites about the extent to which customers could get trauma cover if they had a heart attack.

CBA said some customers who bought credit card insurance may not have been able to claim some benefits - about 65,000 customers were affected and the bank had refunded $10 million.

10.09am: Regulations and obligations

Ms Orr is outlining regulation for insurance companies.

They face prudential regulation by APRA, plus financial services regulation overseen by ASIC under the Corporations Act and the ASIC Act.

They also are subject to the Insurance Contracts Act administered by ASIC, and the industry code of practice.

First, financial services regulation: most insurance policies are financial products, so insurance companies must hold an Australian financial services licence and must provide financial services efficiently, honestly and fairly, she says.

The handling and settling of insurance claims is specifically excluded from the definition of a financial service.

The obligations to provide financial services efficiently, honestly and fairly do not apply to the process of making decisions about a claim, including investigating the claim, negotiating settlement amounts, and estimating loss or damage. This limits ASIC’s ability to take action against insurance companies where there are extensive delays in handling claims.

Insurance companies are subject to regulations about misleading and deceptive conduct, but not to the unfair contract terms. Insurance companies must issue product disclosure statements.

The Insurance Contracts Act contains the duty of utmost good faith - so each party must act towards the other with the utmost good faith.

Failing to act with utmost good faith is a breach of a financial services law - but there is no penalty for this.

The act excludes some consumer protections in other laws from applying to insurance contracts.

For example, insured people can’t seek relief from an unfair insurance contract.

Ms Orr turns to industry codes of practice.

The general insurance code of practice is voluntary and self-regulatory, with 174 subscribers or 97pc of the general insurance industry.

The life insurance code of practice is binding on all members of the Financial Services Council that issue life insurance policies and has 26 subscribers.

The Life Insurance Code Compliance Committee monitors compliance.

But the code does not apply to super fund trustees unless they adopt it. A code for super trustees was introduced in July - it’s voluntary and non-enforceable and covers benefit design, ceasing cover, claims handling, premium changes and dispute resolution.

Ms Orr turns to dispute resolution mechanisms - insurance companies must have an internal dispute resolution procedure and must be members of an external scheme such as the Financial Ombudsman Service.

9.51am: Opening statement

Crowd favourite Rowena “shock and” Orr QC has taken the stand to open the sixth round of hearings at the financial services royal commission, covering the insurance industry.

The first week will cover life insurance, how products are designed, sold and promoted, and how claims are handled, as well as life insurance in super.

The second week will look at general insurance such as natural disaster insurance and add-on insurance sold through car dealerships and travel insurance.

Key questions will cover regulation, whether it’s appropriate that the handling of insurance claims is largely outside of ASIC’s jurisdiction, whether the unfair contracts regimen should apply to insurance contracts, whether the insurance codes of practice should be treated like a similar code for banks.

What changes to regulation are needed to help people with mental illness deal with life insurance companies, Ms Orr asks.

The hearing will tender more than 110 witness statements.

Michael Roddan 9.05am: Clearview to take the stand

Gregory Martin, chief risk officer for the independent life insurer ClearView Wealth, will take the stand at this morning’s hearings.

He is the only witness listed to appear today.

ClearView has already featured in the royal commission’s June round of hearings in Darwin, which probed financial dealings with Aboriginal and Torres Strait Islander Australians.

There, the royal commission heard telephone sales staff at independent life insurer ClearView Wealth benefited from a cultural anomaly among indigenous Australians known as “gratuitous concurrence”, which helped shunt numerous Aboriginal and Torres Strait Islander people into products they didn’t want.

The Australian Securities & Investments Commission’s investigation into the “direct” life insurance channel found a number of recordings of insurance sales staff at ClearView who were walking customers through the process of buying a policy where it appeared they did not want to buy the product.

As part of a wider investigation by ASIC, last year ClearView was found to have sold more than 16,000 policies unfairly over three years through call centres. ASIC alleged more than 1000 of the sales were to customers at indigenous centres who were unlikely to speak English as a first language.

The company made a $1.5 million refund to customers who were the victims of “unfair” and “high pressure” sales tactics and the company promptly shut down the direct sales business, which houses the outbound call centre, following the investigation. The channel represented about 5 per cent of revenue.

Last month ASIC released the findings of its sector-wide review of the direct insurance market and told companies to shut down their outbound call centres — the hallmark of the direct model - or face legal action.

7.45am: Cold call focus

The Australian’s Michael Roddan reports that lucrative deals between some of the world’s largest life insurance underwriters and local companies that operate high-pressure outbound call centres are in the firing line of the royal commission and financial watchdogs.

The royal commission will this week take aim at the fastest-growing slice of the life insurance industry, the “direct” channel, which draws in hundreds of millions in revenue each year.

Despite the profitable revenue stream, which has brought about four million life insurance policies into force, large life insurers providing the underwriting for the policies hawked by outbound call centres have barely tracked how, or to whom, insurance was being sold.

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