Banking royal commission live: insurance hearings - 11 September

Sales agent who pushed insurance on intellectually disabled man survived a litany of complaints and a ‘final’ warning.

Elizabeth Redman and Chris Jenkins

48 min read

10:16AMSeptember 11, 2018.

Updated 7:08AMSeptember 12, 2018

Dad helps intellectually disabled son cancel insurance policy he was signed up for

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.

4.40pm: Summary

Here’s what we learned on the second day of insurance hearings.

Independent life insurer ClearView conceded it “never prioritised compliance” after the royal commission heard details of a series of incentive programs, including one that read “let it rain with gift cards” for call centre staff in a company that broke anti-hawking laws hundreds of thousands of times.
Counsel assisting Rowena Orr asked ClearView’s Gregory Martin a question that put the entire industry into sharp focus, wondering if it is “possible to sell life insurance in outbound sales calls in a way that is both financially viable and legally compliant?”. “I find it difficult to understand how you can reconcile those things,” Mr Martin said in response.
Grant Stewart’s adult son who has Down’s Syndrome was sold an accidental death policy he did not understand or need by Freedom Insurance, and Mr Stewart faced delays in trying to have the policy cancelled.
Incredibly, the agent who sold the policy to Mr Stewart’s son had already received warnings from Freedom over his conduct but was not sacked and was indeed encouraged to sell harder.
Freedom offered commissions to sales agents and non-cash benefits such as a trip to Bali or a Vespa, which Freedom COO Craig Orton agreed encouraged conflicted behaviour by sales agents.
Freedom has written to ASIC to report a range of breaches of the corporations law. The letter acknowledges Freedom sales agents’ behaviour constitutes a potential breach of the Corporation Act’s section 912A(1)(a), 912A(1) (ca) or 912A(1)(f). That is, for providing services efficiently honestly and fairly, ensuring representatives comply with financial services laws, and to ensure representatives are adequately trained and competent to provide financial services. Freedom told the commission at 3pm yesterday it had decided to stop selling four products through outbound sales, although the company did not make a concurrent ASX announcement.

Freedom’s Mr Orton will return to the stand at 9.45am tomorrow. Thanks for following the hearings with us today. We’ll be back from 9am tomorrow.

4.15pm: A clear liability

It had been clear for four months before the sale to Mr Stewart’s son that the agent was a liability. But Freedom didn’t stop the agent causing harm to customers, Ms orr argues.

Mr Orton agrees.

Mr Orton says this was a failure of processes, due at least in part to Freedom being a young company growing quickly.

He agreed there were broader problems with the feedback loop in Freedom because serious complaints weren’t being drawn to the attention of the head of sales.

Ms Orr then notes the time and suggests it might be better to continue questioning Mr Orton tomorrow.

Commissioner Hayne agrees and the hearing is adjourned for the day.

Mr Orton will return to face more questions from Ms Orr in the morning.

4.13pm: ‘Inappropriate and childish’

The agent faced serious complaints from customers who had said they were unhappy with how he spoke to them, that he was rude, or he had berated customers for not listening, and said he pressured customers to provide bank details.

Freedom didn’t move to sack him though.

In the week after the sale to Mr Stewart’s son, the agent signed up someone else who explained they were on a disability pension and had mental health problems.

The agent went to the UK for an approved holiday, but Freedom decided not to have the agent back when he returned to Australia.

So it wasn’t actually the case that he had been dimsissed, but rather that this tenure hand’t been renewed on his return from Britain, Ms Orr suggests.

Mr Orton says his predecessor reviewed the complaints register and found the call with Mr Stewart’s son, and decided the agent should not be coming back.

The previous COO emailed the head of sales saying the call was “a bit of a shocker”.

In a sarcastic tone, Ms Orr reads aloud the head of sale’s response: “I felt so sorry for the poor customer throughout the call. Sad face.”

Mr Orton agrees the response was inappropriate and childish.

4.06pm: Warning signs were all there

The sales agent’s team leader emails the sales agent:

“Mate, you really need to be careful how you speak to customers. QA are on your case at the moment,” the team leader writes. “These calls are not acceptable.”

Another review is more mixed.

“Again you’ve shown how well you can, smashing over 200 lives and earning amazing comms,” the review reads.

“But all of that counts for nothing when you continue to receive negative feedback in relation to your professionalism/QA.”

Mr Orton says the company has not been tough enough on its agents. He’s hesitant to say Freedom is protecting the agent from QA scrutiny, but says the approach was not good enough.

The agent should have been terminated by now, Mr Orton says.

“The company was too soft on agents in the past,” he says.

What did it take to be terminated by Freedom?

“It took a call to a vulnerable customer to terminate this, this person,” he says.

The complaint by Mr Stewart led to this agent’s termination.

“The warning signs were all there,” Ms Orr suggests.

He agrees.

4.00pm: ‘Aim big’

Other Freedom sales agents faced fines for conduct issues.

Was that counterproductive, meaning sales agents felt they needed to sell more to make it up, Ms Orr asks.

“I think it could have that effect,” Mr Orton says in a rather small voice.

The commission sees another internal review document for the agent that didn’t mention the final warning.

The agent had a “bit of a mixed bag in relation to leads” but says the agent “can be one of the top sellers in the company if you put your mind to it”.

“Aim BIG!!!!!” the review encourages.

Mr Orton concedes this was not a responsible message to give to a sales agent who had received a final warning.

This sales agent continued to have issues over the following months.

There were also issues with the agent pressuring customers to provide bank details.

Another internal email warns of a call in which the agent asks for a customer’s bank details.

Ms Orr reads out the transcript carefully: “But my money don’t come out of my debit card. It come from my Bendigo Bank.’

Mr Orton agrees the agent was pressuring customers to provide bank details.

Another fortnightly review shows the agent was praised for “excellent work on your accidental death and injury cover”.

So the agent has had two warnings now but the feedback is about how well he is doing with sales targets, Mr Orton concedes.

3.51pm: Automatic fails

Now, sales agents get marked down for failing quality assurance marking guidelines.

Some behaviour will give an agent an automatic fail, such as undue pressure. For others, an agent could have points deducted but still pass.

What about the disciplinary process at Freedom?

It involved giving “feedback” to the agent. Mr Orton concedes this was an inadequate system for dealing with agents who engaged in misconduct.

A feedback report to the sales agent who sold the policies to Mr Stewart’s son is displayed.

The agent was told he made a “great start” by selling 20 policies in a week, but had room for improvement. For example, he must be selling accidental death on every call from now on.

A couple of months later, the sales agent received a written warning.

The warning was over the consistent incorrect logging of calls, and the agent’s excessive use of Facebook including while on the phone to customers.

A final warning over consistent incorrect logging of calls said further misconduct would lead to termination.

A $2000 penalty was imposed on the agent, to be deducted from his commission across four fortnights.

3.41pm: Quality assurance fails

The exchanges are getting short as Ms Orr continues to look at the quality assurance guidelines.

Mr Orton thinks that if the call to Mr Stewart’s son had been through quality assurance the issues would have been picked up?

Ms Orr wonders how he can be so confident. In fact, one of the Freedom agents listed to the call, appeared to discuss it with someone else, and then came back and said they couldn’t see anything wrong.

“So you can’t be confident if that call had been listened to, anyone would have thought anything of it?”

Mr Orton concedes the point.

We now look at the marking guidelines from February this year.

An agent still wouldn’t fail to tell a customer their bank information was being used for something other than premiums, or that Freedom cover was the same as a competitor’s, or that Freedom would cancel the customer’s policy for them.

It wasn’t a fail for the agent to provide personal advice which is a breach of the Corporations Act.

Mr Orton is “confused” and “wondering if I’m misunderstanding this sheet”.

We turn to the latest guidelines from July 24.

This is the first time these matters have been recognised as “fails”, Ms Orr suggests.

Now it’s a fail to tell a customer their bank details are being used for another purpose.

Why did it take so long for Freedom to implement a robust marking guideline?

Mr Orton says he’s been reviewing quality assurance for a while and it shouldn’t have taken this long.

A sign-off procedure with the group’s insurers could have slowed the process down, he says.

3.34pm: Guidelines without consequences

Quality assurance comes into focus.

The quality assurance processes had inadequate coverage at the time when Mr Stewart’s son was sold insurance, Mr Orton says. But he nevertheless thinks the QA guidelines are strong.

For the start of 2017 42 epr cent of all calls were being assessed. Mr Orton’s not sure how many were assessed in 2016 and the call to Mr Stewart’s son was not assessed.

The marking guidelines are displayed. For example, if an agent didn’t introduce themselves by their first name they would get zero on that count.

An agent would fail if they didn’t offer accidental death/injury cover when dealing with final expenses cover.

An agent would fail if they gave the wrong premium amount but not if they failed to say the premiums would be due within 28 days. Mr Orton conceded that should have been a fail.

It wasn’t a fail to provide some examples of misleading/deceptive/false/incomplete information, and it wasn’t a fail if the agent told a potential customer they were getting their bank account details for something else instead of deducting premiums.

It wasn’t a fail to tell customers their premiums would never increase, or to tell a customer Freedom would cancel their existing cover for them.

Mr Orton doesn’t think the guidelines were robust in 2016 but thinks they have improved.

He thinks that the guidelines pick up some behaviour but with no consequence.

Ms Orr wonders what the point is of picking something up if there is no consequence?

Mr Orton concedes the marking guidelines were not robust

Michael Roddan 3.25pm: Market disclosures

Outside the commission, a spokesman for Freedom Insurance said the company did not disclose to its shareholders its decision to shut down a raft a problematic products at 3pm the day before it took the stand at the royal commission because it did not believe the changes were “material” to the company.

Freedom Insurance earlier today told the royal commission at three o’clock yesterday afternoon that it had decided to cease selling life cover, trauma cover, accidental death cover and accidental injury cover through outbound sales. Outbound sales are responsible for about 90 per cent of the company’s revenue.

However, the company is continuing a plan to sell funeral insurance plans, which account for 85 per cent of its business, through outbound sales.

Last week, Freedom announced a surprise strategic overhaul of its business after the majority of its revenue streams were put in jeopardy by an ASIC ban on cold calling life insurance sales.

“ASX is continuing to monitor the situation and liaise with the company,” a spokesman for the sharemarket regulator said.

Freedom Insurance “is aware of its disclosure obligations, including the need to keep the market informed of material developments. ASX notes the announcements the company has made about its strategic business review and ASIC’s review of direct life insurance,” the ASX said.

In the amended statement evidence presented at the royal commission today, chief operating officer Craig Orton said:

From the 6 August 2018 Freedom will no longer make outbound calls for the above products.
From 21 September 2018 there are no outbound calls for term life. There will no downgrade option for term death when the customer fails underwriting
From 21 September there are no outbound calls for trauma
From 30 September there is a suspension of marketing for loan protection cover
From 21 September Freedom ceases using lead data sourced from telemarketing lists
From 30 September there is no commissions for sales and retention. Remuneration is by flat rates. No non-monetary incentives based on sales
As of the 6 August 2018, Freedom Insurance no longer sells and accidental death cover or accidental injury cover on outbound sales calls.

3.24pm: Campaigns in breach

Mr Orton accepts that these sorts of incentive programs - winning a trip to Bali or a Vespa - encouraged conflicted conduct by sales agents, especially when no quality assurance qualifications were placed upon participation in the program.

“I don’t believe in these sorts of incentives,” Mr Orton says. “I think it should be about quality. And I think if you get the quality right you can improve consumer outcomes.”

The life insurance framework reforms came into effect on January 1.

Freedom, in its breach report to ASIC, said it had breached the Corporations Act for some of its 2018 incentive programs.

This included the Bali trips and Vespa campaign, he agrees.

Freedom told ASIC this was conflicted remuneration and that there had been a breach of section 963E of the Corporations Act.

Freedom couldn’t find any consumer detriment, but Mr Orton says these campaigns can result in consumer detriment if sales people are too pushy which is how the incentives are encouraging them to behave.

3.19pm: Bali and Vespas

Ms Orr is not finished with the non-cash incentives that Freedom offered sales agents.

An email with the subject line “LET’’S GO TO BALI” was sent by a staffer in the quality assurance department, which is excercise governance over the sales process.

Ms Orr is impatient: “Was it normal for sales incentive programs to be run through Freedom’s quality assurance department?” Mr Orton: “No it wasn’t.”

This was a consultant looking at quality assurance who still told staff about the Bali trip, he says.

The promotion offers agents the chance to win a luxury seven-day holiday for two people to Bail including airfares, accommodation and complimentary treats, for meeting targets.

Another internal email encourages staff to “sell sell sell with one thing in mind: get to Bali”.

Mr Orton: “I am as livid with it, as you are.”

But wait, there’s more.

Another Bali incentive campaign was offered in January this year.

There were tickets left over, Mr Orton says quietly.

“Bali Bali Bali it’s on again,” Ms Orr reads aloud.

The same staffer in the quality assurance department emailed staff about a “VESPA SCOOTER COMP”. “WINNER TAKE ALL - no handicapping - so you need to be #1 to win!”

3.11pm: Reports to ASIC

Focus returns to Freedom’s letter to ASIC reporting its legal breaches.

Freedom told ASIC it had reviewed its commission framework.

Between 1 January and May this year, there had been a potential breach of section 963E of the Corporations Act regarding the variable component of sales agent remuneration, Freedom wrote.

Ms Orr keeps pushing on the commission structure, suggesting it has incentivised poor sales agent behaviour and noncompliance with the law since January 1, and Mr Orton agrees.

Freedom offers incentives beyond commissions.

An internal email is displayed with the subject line $$$$$$ INCENTIVE $$$$$.

It’s a Freedom incentive campaign that offered sales staff the opportunity to go into a draw to win a $70 first prize or $30 second prize for selling eight funeral lives (for experienced staff) or six for newer staff.

“Get Selling!!!!!” the email reads, with a picture of Tom Cruise screaming “Show me the money!”

Another internal email has the subject line “Today’s Incentive $150”.

The target is 400 lives by lunchtime and the email is illustrated with a picture of rapper 50 Cent.

Mr Orton, sounding indignant, thinks the campaign is “inappropriate” and “unprofessional”.

Another incentive is for the Freedom Boat Party, a three hour cruise around Sydney Harbour for an agent who met daily targets, with a second chance passport draw.

3.02pm: Cutting out commissions

There have been even more changes to the commission program since it was introduced.

Mr Orton agrees sales agents have been able to substantially increase their remuneration through commissions.

Average remuneration for sales agents attributable to commissions was 32 per cent in 2016.

Ms Orr puts it squarely that commissions have been incentivising agents to aggressively pursue sales.

Mr Orton doesn’t hesitate to agree.

Has that led to poor customer outcomes?

Mr Orton: “I think it can lead to poor customer outcomes. Not on every occasion but we’ve got some examples here today which I can only apologise for.”

Focus turns to Freedom’s statement - made at 3pm yesterday, Ms Orr doesn’t fail to note - that it will cease commissions for some products.

Mr Orton agrees that the changes will remove any potential for bonuses to inappropriately influence the conduct of sales agents and he agrees the commission structure that was in place had the potential to influence agent conduct.

2.58pm: Not tough enough

Are there other factors that can affect a sales agent’s commission?

There can be penalties at the discretion of the head of sales, such as gross misconduct, poor sales practices, poor professionalism.

There was no policy document governing this.

Mr Orton is aware of past examples of gross misconduct, such as an agent not making clear what a policy was for.

“My honest view, Ms Orr, is that the company has not been hard enough on its sales agents in doing this,” Mr Orton says.

“We need to be tougher.’

Ms Orr, clearly unconvinced, asks: “And is that going to happen?”

Mr Orton, talking tough: “It’s going to happen with me.”

2.54pm: Commission complexity

Last year, Freedom made more changes to its commission model.

An internal document is displayed. It shows how commissions are calculated: revenue less expenses and less “wastage”, multiplied by agent quality rating, multilied by quality assurance average factor.

What does it mean that the level of sales made is “seeded”?

The agent gets extra commission for every additional life insured, Mr Orton explains.

Then expenses - seat cost and lead cost - are deducted.

“Wastage” is also deducted, covering situations whre an agent enters the wrong data into the system, or if a customer cancels within six weeks. Two compliance fails in 20 days would result in the commission being voided for the whole period.

If an agent has a result below zero they don’t receive commission, but if they have a result above zero, this figure is multiplied by their quality rating - which allows a sales agent to earn up to 200 per cent commission on their sales.

The second multiplier is the quality assurance assessment score. An agent would lose 16 points for pressure selling from a 100 point start if an agent has a percentage score below 85 the call fails the quality assurance process.

There is some discussion about whether a multiplier is for the quality rating or the quality assurance average factor.

Mr Orton volunteers that the information is “complex”.

“It’s very complex,” Ms Orr agrees.

2.46pm: Shifting the costs

So why did Freedom introduce two costs for its agents - a seat cost (salary) and a cost per lead (where third party providers sell customer information)?

Was Freedom trying to shift the costs of doing business onto its agents, Ms orr asks.

Mr Orton disagrees. The seat cost was there to encourage them to go to work and the other was to make sure that if they used higher quality leads they paid for this, he says.

So agents need to sign people up to policies to cover costs?

Mr Orton thinks the issue is the commission payment, not covering costs. This is why he’s been keen to get rid of commissions, he says.

The commission that a Freedom sales agent could earn when Mr Stewart’s son was sold the policy was uncapped.

As recently as last week Freedom was advertising for staff to join its business and earn uncapped commissions.

“If I had known that was there [on the website], it wouldn’t have been,” Mr Orton says.

2.39pm: Leads and commissions

How does Freedom remunerate sales staff, Ms Orr wants to know.

A flat fee of $50, then the agents cover their wage, then they have “an unfortunate term called ‘wastage’” that covers any failures, and then they get a quality score and that determines their commission.

Initially Freedom had volume-based commissions, where agents had to sign up 30 people a fortnight, and from April 2014 they could earn extra commission for signing up at least 50 people in a fortnight.

From 2015 Freedom changed the commissions to introduce a “commission multiplier”, where agents got a higher commission depending on sales, ranging from 60 to 250 per cent of the total commission amount achieved each fortnight.

Why?

Mr Orton: “To encourage sales”.

From 2015, for the first time new applications that were marked as a “failure” were not considered for commission.

Agents couldn’t earn commission until they had earned enough to cover the cost of their salary.

A “seat cost” is their salary, and encourages agents to turn up up, Mr Orton says. People not turning up is a problem in outbound call operations, the commission hears.

There was also a “cost per lead” - lead providers would charge more for a customer who was chasing information.

A very good lead is someone going to a website and asking for a call back.

Freedom pays “a lot of money” to third party lead providers directly for customer information for high quality leads.

A lower quality lead might be someone who filled out a survey and requested to get information sent to them.

2.32pm: Any commission can be conflicted

Ms Orr asks if this too many incidents falling below community expectations, for Freedom

Freedom’s Mr Orton says one incident is too many.

The company listens to more than 95 per cent of sales calls to review them.

From last year, the company started a process of trying to listen to 100 per cent of sales calls, although it doesn’t always quite reach this target, he says.

Last week Mr Orton filed a breach notice with ASIC, relating to five specific complaints including the complaint Mr Stewart made about his son.

The letter acknowledges Freedom sales agents’ behaviour constitutes a potential breach of the Corporation Act’s section 912A(1)(a), 912A(1) (ca) or 912A(1)(f). That is, for providing services efficiently honestly and fairly, ensuring representatives comply with financial services laws, and to ensure representatives are adequately trained and competent to provide financial services.

Are these complaints also unconscionable contact?

Mr Orton accepts some of the individuals in question potentially acted unconscionably.

Why has Freedom had these issues with misselling to vulnerable customers?

Mr Orton is disappointed the company didn’t pick this up, but he says given the number of calls he’s not surprised there were a few.

THe breach notice says Freedom recognises a link between misselling to vulnerable customers and its remuneration structures, and the company has removed commission-based remuneration from October 1.

Mr Orton insists that any commission payable has the potential to be conflicted.

Michael Roddan 2.22pm: 29 people on one policy

Ms Orr brings up a range of concerns about Freedom selling policies to vulnerable people.

One is an ASIC note about a Freedom sales rep calling up a customer with a disability and asking to put her brother on the phone.

Mr Orton is asked about why Freedom described its selling of a policy to a customer who suffered a stroke and may not have understood the policy as behaviour “falling below community standards”.

If there was any doubt on the behalf of the customer about whether she could understand the policy, this would be a more serious breach, Ms Orr says.

One FOS complaint had a policyholder with 29 family members attached to it. Why is this not misconduct? Ms Orr asks.

“There was no indication on the call this person was vulnerable. It was a failure of processes. The customer was asked if it was affordable. I’m not justifying it. no one should ever have 29 people put on their policy,” Mr Orton says.

2.15pm: Son lost confidence

Outside the commission, Grant Stewart, whose adult son with Down’s Syndrome was sold life insurance cover by Freedom that he did not understand or need, has exposed the human cost of the sale on his son as it has hindered his son’s move towards independence.

“It made him very apprehensive about accepting phone calls,” Mr Stewart told reporters in a press conference during the hearing’s lunch break.

“I think he lost some confidence in himself through this process. He’s transitioning to independent living just this week and it’s taken the last couple of years to restore some confidence, to believe that he could do that.”

Mr Stewart, a religious minister, reviewed internal Freedom documents where staff had discussed his case.

“There was some language there that I probably couldn’t repeat in the pulpit,” he said.

He said the commission “could be” extended to allow more consumers to tell their stories.

“Could be, it’s up to the commission. I think they’ve got a fair few witnesses still to come,” Mr Stewart said

Asked if bank and insurance company bosses should face jail for their conduct, he demurred, but noted the evidence of potential criminal breaches uncovered so far.

“It’s not my call. But certainly I think there’s been evidence that there’s been some criminal malpractice taking place,” he said.

He said he appreciated the apology from Freedom Insurance chief operating officer Craig Orton, made in evidence today.

“It felt like it was a sincere apology and I certainly appreciated Craig doing that.”

Consumer Action Law Centre lawyer Philippa Heir said some people were financially hurt by sales cold-calls.

“It is time for a ban on unsolicited sales of financial products,” Ms Heir told reporters.

She noted that 85 per cent of insurance sold by Freedom funeral insurance, which it expects to keep selling through outbound sales calls.

Intellectually disabled man ‘distressed’ after being sold insurance policy

Michael Roddan 2.14pm: Unconscionable conduct

Do you accept Freedom engaged in unconscionable conduct by selling the policy to Mr Stewart’s son, who has Down’s Syndrome, Mr Orton is asked.

“I think he [the salesperson] knew that person was not capable of understanding what was being sold to him,” Mr Orton said.

“It was deeply troubling,” Ms Orr says. “It was,” says Mr Orton.

Freedom had no training in relation to handling vulnerable customers, Ms Orr suggests.

“Not specifically, no,” Mr Orton responds.

There were informal guidelines, though, Mr Orton says, explaining that for people under the influence of drugs or who had mental problems there were guidelines. In these cases, documents would be sent out to customers.

Were these guidelines in documents? Ms Orr asks. No they weren’t, but Mr Orton reckons a manager told him the guidelines were there.

Michael Roddan 2.09pm: Accidental death policies

Freedom Insurance COO Greg Orton is back on the stand and being asked about the scripts the company gave sales staff selling accidental death policies, which had many exclusions.

Do you consider customers were given adequate notice of the exclusions, Ms Orr asks.

“Not always over the phone,” Mr Orton responds.

“Are you aware of ever having given adequate notice over the phone?”

“No.”

Mr Orr: “There was nothing that the sales staff were required to make about the nature of an accident or exclusions under the policy.”

Mr Orton agrees there could be confusions on customers’ behalf about what they were able to claim on.

Ms Orr brings up data showing Freedom denied claims because of exclusions such the claimant being affected by alcohol or if cause of death was non-accidental.

ASIC expects companies to stop selling accidental death insurance unless they could demonstrate the products have some value for customers, under threat of legal action, Ms Orr reminds him.

But Freedom expects to continue to sell accidental death through inbound calls, but not outbound calls.

How will this provide value for customers, Ms Orr asks.

Mr Orton says customers who call the company have generally researched the product and will continue to sell the product.

1.01pm: Many exclusions

Is it surprising that Freedom has sold substantial numbers of accidental death policies and only receives a small number of claims, Ms Orr asks.

Mr Orton: “It probably doesn’t surprise me for an accidental death product, but they are larger benefits.”

Ms Orr: “Does that say anything to you about that value of the product for the consumer?”

Mr Orton says he’s more concerned about the loss ratio.

He doesn’t think the 14 per cent ratio was appropriate but the other years were 55 per cent and 25 per cent so far this year.

“It could have a very bad year in terms of financial loss for an insurance company, a good year for the customer ...[he reconsiders his choice of words] or probably not, but it is - it does have some variations,” he says.

Freedom’s training slides for accidental death cover are displayed.

The slide says an accident is an injury that is caused by “accidental, violent, external and visible means without contributing causes such as illness or disease”.

Mr Orton explains that someone with “osteo” who leans on something and breaks their bone would not be covered.

Ms Orr suggests this is a “very narrow definition of an accident”.

Mr Orton again pauses: “Yes it could be construed that way, yes.”

The same definition applies to accidental injury.

He accepts the cover is diminished by very significant exclusions under the policy.

The training slides list the exclusions: self-inflicted injury, criminal activity, aerial activity, motorised sport, war, terrorism, alcohol/drugs, intentional act by carer for children, specific occupational tasks.

So for example, a customer on a helicopter would be excluded, he says, as would someone working 10 metres from the ground in their occupational task.

Ms Orr: “So given that there are already a very small number of people in Australia who die as a result of an accident, your accident definition and these exclusions are likely to have a very significant impact on the ability of a person to ever claim under these policies?”

Mr Orton: “I agree.”

On that, Ms Orr suggests to Commissioner Hayne it might be an appropriate time for a break. The commissioner concurs and the hearing adjourns until 2pm.

12.58pm: ClearView shares hit

Outside the commission, shares in life insurer ClearView have dropped to two-year lows in the wake of this morning’s evidence.

ClearView conceded it had “never prioritised compliance” after the royal commission detailed a series of incentive programs for its call centre sales staff.

ClearView dropped as much as 11.3 per cent to lows of 90c in morning trade, settling to 93c at lunch.

Fellow insurer under the microscope, Freedom Insurance, was trading flat at an all-time low of 13c - having fallen 86 per cent since it was called to appear at the royal commission last month.

Follow the market reaction live with our Trading Day blog.

12.52pm: Premiums and payouts

The commission turns to ASIC’s report on direct life insurance.

ASIC warned accidental death policies offer limited benefits and had a 16.1 per cent claims ratio for 2015 to 2017, and accidental death had the lowest rate of claims accepted for all types of life insurance at 26 per cent.

What proportion of deaths in Australia are the result of accidents, Ms Orr wonders?

It’s a small percentage, Mr Orton says.

The ASIC report refers to ABS statistics showing around 5 per cent of deaths in 2016 were a result of accidents.

But how many accidental death policies did Freedom sell?

In 2015 it was 9611, then in 2016 it more than doubled to 19,282. Mr Orton says there was a massive increase in sales for final expenses cover which included accidental death: “The growth of the business has been quite strong over recent years.”

In 2017 it was 21,079 policies sold.

Halfway through this year Freedom has already sold 12,007 accidental death policies.

In 2015 Freedom had total premiums for accidental death policies of more than $366,000 with four claims, all allowed in full, so the ratio of premiums received to amounts paid out was 55 per cent.

In 2016 total premiums were over $1.1m, with 10 claims, eight allowed, and a ratio of premiums received to amounts paid out of 46 per cent.

In 2017, premiums were over $2.1m, with 22 claims, 10 allowed and six still pending, a ratio of premiums received to amounts paid out fell to 14 per cent.

For 2018 total premiums so far are over $1.6m, with 18 claims, of which three allowed so far and 10 pending, and a ratio of premiums received to amounts paid out 25 per cent.

12.43pm: Freedom retention officers

When someone tries to cancel their life insurance policy why does Freedom try to sell them accidental death/injury cover, Ms Orr asks.

Mr Orton suggests it could be an alternative if cost was prohibitive.

The commission sees an internal document called the Freedom Insurance Retention Training Manual.

Why are the staff being trained called retention officers?

Mr Orton says it’s their job to retain the customer, and it’s better for the company if the customer keeps the cover.

Are they instructed to try to talk the customer out of cancelling?

Mr Orton, in a somewhat testy voice: “They’re instructed, Ms Orr, to provide alternatives for the customer calling in to cancel.”

The training manual has a page on cancellations: “This is where your sales expertise and problem solving skills come into play,” the manual reads.

The manual mentions a “save percentage”, the number of policies the agents manage to save, which they had targets for and was a part of their KPIs and remuneration structure.

The manual says an agent must offer accidental death and injury cover if they cancel a policy and will fail quality assurance if they don’t.

Mr Orton concedes this is a very strong direction - that is also not appropriate - for retention officers. He will check if this direction is still in place and if it is he will make changes.

There’s a risk people think they’re getting something like life cover for a lower cost, he agrees.

Freedom gets an upfront and trail commission for selling this cover, for accidental death the commission is 33.5 per cent to 60 per cent and the trail commission is less than 20 per cent.

12.37pm: ‘Downgrading’ sales

The commission looks at a product training presentation for Freedom sales agents, from July last year.

The slides say accidental death cover offers up to $50,000 per life insured, and members must meet age and residency criteria. But it has no medical or health questions. Up to eight family members can also get cover. Agents have been encouraged to sell cover for up to eight family members, Mr Orton agrees.

What about accidental injury cover? Customers would only be paid for the benefit once and any payment reduces the amount payable under accidental death cover, we’re told.

These products were sold with the final expenses product, and until a certain date were sold for people who failed underwriting for a life insurance product, Mr Orton says.

He admits ASIC doesn’t think it’s appropriate to downgrade from failed term life applications.

Mr Orton accepts Freedom did engage in downgrading sales practices in selling accidental death, and says that he doesn’t think this should be done.

12.30pm: Death and injury cover

Focus turns to the insurance sold to Mr Stewart’s adult son with Down’s Syndrome.

Freedom said yesterday it’s no longer selling accidental death through outbound sales. The cover will be be available through a website, and if a customer says they want the cover the company may offer it to them, Mr Orton says.

The accidental death policy provides coverage for accidental death, while the accidental injury cover provides benefits for major injuries and broken bones.

So accidental death and accidental injury “provides a cheap alternative” to full life cover “but doesn’t provide coverage for natural causes”, Mr Orton says.

Ms Orr; “Well it’s not a true alternative to life cover is it?”

Mr Orton pauses. “No. No, you’re right.”

That’s because the circumstances where someone can claim are much more limited, he agrees.

The accidental death product was sold to Mr Stewart’s son.

Freedom Insurance chief operating officer Craig Orton appearing at the financial services royal commission in Melbourne.

12.26pm: ‘True 12 month cover’

Ms Orr suggests Freedom is continuing outbound sales of funeral insurance not because there are varying degrees of “outbound sales” - but because it makes up 85 per cent of its business.

Mr Orton agrees it’s the most important part of the business.

So is that why Freedom is continuing in the face of ASIC’s report on direct sales on life insurance?

Mr Orton disagrees, and says the reason is the company can provide “true 12 month cover”.

Ms Orr wonders then if the company wasn’t really giving customers a 12 month free period because customers didn’t have the chance to opt in at that time but instead had to opt out?

Mr Orton: “I don’t think, Ms Orr, that the model itself was a bad model. I think it could have been improved.” He adds that customers had an opportunity to learn more about their cover.

Shouldn’t customers learn all they need to learn before buying cover?

Mr Orton agrees.

So was the 12 month free period confusing?

Mr Orton disagrees. But he accepts the company has made a decision to change this

12.22pm: An apology

Senior counsel assisting Rowena Orr QC turns to Freedom’s board minutes.

The minutes include an item on the royal commission, noting that themes will include the targeting of vulnerable customers, high pressure sales, objection handling, bonuses and quality assurance.

The minutes mention Mr Orton would apologise to Mr Stewart in evidence if given the chance.

Ms Orr: “I’m happy to give you that opportunity right now.”

Mr Orton turns in his seat to face Mr Stewart.

Mr Orton: “Mr Stewart, to you and your son I sincerely apologise for that - your son had to be put through that and you have that from the bottom of my heart. That should not have occurred.”

The board minutes say Mr Orton would openly acknowledge where conduct was not acceptable, and record chairman David Hancock saying there was potential brand damage and preparatory work to respond should commence.

The minutes refer to the ASIC Direct Life Review, noting that ASIC was yet to decide which outbound activities will be restricted, but that there would be “significant” restrictions on pure outbound sales calls.

Mr Orton adds that the company reviewed issues with outbound telemarketing and ensuring better consumer outcomes.

“We want to engage with ASIC more on determining exactly what their recommendations are,” he says. He has met with ASIC and understands there will be a transition period on outbound sales.

Ms Orr wonders why the company decided to continue outbound sales of funeral insurance?

Mr Orton says there are “varying degrees of outbound” and he would like to discuss the company’s new business model with ASIC. He asks, does it mean if someone comes to your website you can’t call them back?

12.14pm: ‘Unnecessary paperwork’

Freedom’s Mr Orton returns to explaining the decision to stop selling life insurance and trauma by outbound sales.

He says the decision would give customers a chance to understand the product before paying.

It was a decision made between the head of marketing, CEO and him, he says.

Ms Orr presses Mr Orton on why the decision wasn’t recorded in any documents.

Mr Orton: “Because it was a decision that we could deal with without creating unnecessary paperwork… I don’t know why we would have to record that decision.”

Ms Orr wants to know why such an apparently significant decision went undocumented.

Mr Orton agrees that his business model is selling six products through outbound sales but says the dumped four products in question make up less than 15 per cent of sales. The remainder is largely funeral insurance. Loan protection is a very small part of the business.

Will Freedom keep selling its main product - funeral insurance - through outbound sales?

Yes, through its in house sales centre, but Freedom will “work with ASIC on the model”, Mr Orton says.

12.10pm: Freedom board minutes

The commission sees the board minutes that Freedom handed in overnight.

Ms Orr QC asks Freedom’s Mr Orton to find the mention in the minutes that records the decisions to stop selling several products through outbound sales calls.

There is long a pause as he looks through a hard copy of the minutes.

Item five of the minutes records the decision over sales and retention agent remuneration.

But what about the other decisions, are they reflected in this document, Ms Orr asks.

Mr Orton concedes they’re not.

Are there no documents recording Freedom’s decision to stop outbound sales of these policies?

Mr Orton says there aren’t.

He explains: the decision was made in late July to stop collecting banking details on the first call to give customers a 12 month introductory period, and to give customers the chance to make sure they understood their purchase decision.

“There are no documents because it was the decision between the CEO and I,” he says.

Ms Orr wants to know why there are no documents.

Mr Orton: “Ms Orr, it’s not a major component of our business, accidental death and accidental injury.”

He concedes the commission should have been told in his witness statements about stopping the outbound sales. The company is still selling the product but not by outbound sales, he says.

He agrees he should have included it in his statement to the commission.

Why wasn’t it included?

Mr Orton: “I don’t have an answer for that Ms Orr.”

12.01pm: Freedom Insurance’s Craig Orton appears

Freedom Insurance chief operating officer Craig Orton has taken the stand.

He was appointed in February to make improvements across the business.

Since he started, changes include, quality assurance for all sales calls, enhancements to vulnerable customer training, and practical guidance on customer training.

Freedom Insurance is a distributor of life insurance products through telephone sales. Most calls are outbound.

The company has two Sydney-based call centres. But is terminating its relationship with the external call centre and will just keep its in-house call centre.

Freedom distributes final expenses cover which is funeral insurance, life cover, trauma cover, loan protection cover, accidental death cover and accidental injury cover.

Questioning Mr Orton, senior counsel assisting the commission Rowena Orr QC sounds somewhat annoyed.

Ms Orr: “Freedom told the commission at three o’clock yesterday afternoon that it has decided to cease selling all of these products except funeral insurance and loan protection cover through outbound sales calls… That’s a very significant change isn’t it?”

Mr Orton agrees it is a significant change, made so the company can ensure it’s working on any regulatory concerns, particularly around accidental death and accidental injury. It’s stopped taking banking details on the first call so the first year of free cover is a year of free cover.

The commission then sent a notice to produce to Freedom at 6pm last night, asking for documents recording the decision to cease the outbound sale of accidental death/accidental injury/term life insurance/trauma. Also requested were documents about Freedom ceasing commission for sales staff and deciding to cease non-monetary incentives for sales.

Freedom provided one document in response, its board minutes from September 5.

11.46am: ‘He didn’t understand’

The whole insurance sales call goes for 18 minutes. Mr Stewart has listened to the whole thing and was “quite disturbed” because he doesn’t think his son showed he understood what he was signing up for.

“He was being compliant and trying to be polite, but didn’t understand,” Mr Stewart says, adding it would have been apparent that the son was struggling to understand the questions.

He says his son didn’t understand the call or what he was committing to. He thinks the agent was just asking the questions on a script until he got the answers he wanted. He doesn’t think the call was fair to his son.

The son has become apprehensive about answering his phone despite his number being put on the Do Not Call Register.

Mr Stewart says his son knows he is giving evidence at the commission about those calls he used to get.

Mr Stewart says he is giving evidence because he was disturbed at the process and concerned others would be targeted in similar situations.

He steps down.

11.42am: ‘I need to go’

The commission hears the initial sales call to Mr Stewart’s son.

It includes several long pauses when the son is asked questions such as whether he is an Australian resident, whether he has any family, and whether his mother is there at the moment.

Mr Stewart was disturbed at some of the responses.

The commission hears a second sales call, where the agent offers free cover for a year, asking if the son would like $10,000 or $15,000 final expenses cover, and distinguishes between set and level premiums. The fast-talking agent offers accidental death and accidental injury cover on top.

The son again obviously pauses before each answer and asks questions like “can I have both” the $10,000 and $15,000 options.

The son offers polite responses such as “okay” and “yeah”.

In a third extract, the son says “I need to go.” The agent responds: “Alright, two minutes, I’ll let you go in a moment.”

The agent agents for the son’s bank details, and the son responds he doesn’t know.

11.31am: Making light of the complaint

Mr Stewart got a letter from Freedom COO Mr Orton with the call recordings and internal communications.

Mr Orton wrote that the company investigated the sale and thought the policy ought to be cancelled.

Mr Orton said the sales agent in question “was exited from the business” shortly after the sale, and apologised for any distress this caused, and said he was “disturbed and disappointed” to review the exchange, and it “does not reflect the culture and behavioural standards of Freedom Insurance” and that he had counselled the staff involved.

What does Mr Stewart think about this response two years later?

“I felt disturbed at the some of the communication that was involved and that you referenced before, some of the internal communication. I thought that it was a long time coming, an apology for what had happened, and I guess I was more disturbed at the potential for this kind of experience to happen to other people in similar circumstances to our son,” he says.

He thought some of the internal communications made light of his complaint and weren’t complimentary.

Grant Stewart appearing at the financial services royal commission in relation to insurance sold to his intellectually disabled son. Picture: Supplied.

11.27am: ‘A difficult process to go through’

Ms Orr wonders what it was like to be on the call.

Mr Stewart: “I found it a very frustrating experience and was angry that our son had to go through that.”

He thought it was a waste of time to hear about the benefits of the products his son had signed up to.

He asked Freedom to send recordings of the calls in which the sale had been made to his son.

The sales agent asks for this request in an email - which Mr Stewart has already done - and she says “it will probably be looked at within the next two to three working days”.

He did not receive the call recordings.

He was told he had terminated the insurance policy.

Was it hard for his son to say the right words to cancel the policy?

“He found it difficult to articulate the words, let alone understand what they meant,” Mr Stewart says.

He doesn’t think his son understood what was going on in the call. His son was “quite distressed” because he thought he had done something wrong.

“It was a difficult process to go through and I especially felt for our son having to add distress to his situation,” Mr Stewart says.

Mr Stewart contacted ASIC to complain.

He cancelled his son’s debit card because he wasn’t convinced the payments would stop.

Two years later he still hadn’t received the call recordings.

He wrote to Freedom’s risk and compliance manager Lisa Delahunty asking for the call recordings. She replied saying she’d get back within the following week. She didn’t send the information.

He sent a follow-up email and got a response saying she’d try to respond within a few days.

11.19am: Terminating the policy

Two days later he and his son called Freedom again.

The call is played for the hearing. Mr Stewart asks to cancel and the sales agent launches into a pitch about how the cover is free for the first 12 months. “We’re the only company out there that offers 12 months free cover!”

Mr Stewart says his son has no idea what he was taking out.

The agent: ”But I’m trying to explain to you, just in case you might want to keep that.”

A later part of the call is played.

The agent says she listened to the call. “We wouldn’t know that he’s obviously, he’s got any disabilities or anything wrong with him, because the call had been taken up as natural, like a normal person.”

But she says the company is happy to terminate the insurance.

Mr Stewart warns “your company may be in a spot of bother if they use these kind of techniques to sell products over the phone,” saying he has taken legal advice.

The commission hears another excerpt, 15 minutes into the phone call.

Mr Stewart gently instructions his son to say “I wish to terminate the policy”, which the son stutters through, and requires another two prompts to finish the sentence.

The difficulty Mr Stewart’s son has in articulating the required words is quite obvious.

11.12am: An official complaint

A recording of Freedom Insurance’s sales call is played to the commission.

In the call, Mr Stewart said he was “very unhappy about this because I think that’s taking advantage of someone”. He mentions his son has an intellectual disability with very poor speech, so the sales agent should have realised.

He wasn’t able to cancel the insurance in that call. The Freedom representative said she would look into a recording and call back, which she did not do.

Mr Stewart says this was “extremely frustrating”.

He emailed Freedom’s head of operations, Harvey Light.

His email reads: “I wish to lodge an official complaint… he does not possess the capacity to discern and indeed to make informed decisions about such things as his ‘need’ for life insurance… taking advantage of a person with an obvious intellectual disability for the purposes of luring them into buying one of your policies cannot be condoned.”

He did not get a response to the email.

11.06am: Son sold insurance over the phone

Mr Stewart became aware in June 2016 that his son had been sold insurance by Freedom Insurance when a letter arrived.

The letter shows that the son had taken out the Freedom Protection Plan, with an accidental death policy with a $50,000 benefit, an accidental injury policy with $50,000 benefit, and a final expenses cashback policy with $10,000 benefit.

The fortnightly premium was $10.60 which would be deducted 12 days after the letter, although premiums for final expenses cover were free for the first year.

“I was quite staggered because we had no idea that this had happened and I, yes, was flummoxed really,” Mr Stewart says.

He didn’t know how it happened, although the son remembered talking to someone on the phone, but felt embarrassed about the whole thing.

Mr Stewart didn’t think his son needed insurance as the family has its own insurance and has made provision for him in their wills.

The son had provided his debit card details but he didn’t know why - he didn’t know he had provided them to buy insurance.

Mr Stewart rang the insurance company and asked to cancel the policy.

11.00am: Grant Stewart appears

The next witness is Grant Stewart, who is a Baptist minister.

He has made a statement to the commission about his younger son, now aged 28, who bought insurance from Freedom Insurance in 2016.

His son was born prematurely and has Down’s syndrome.

Two years ago, the son was living at home. He is “relatively high functioning” but “requires a good amount of assistance on general care issues, on making decisions, on living life”.

He can read and write and take public transport but needed help with basic living. He went to mainstream schools until Year 9, then to a special school for the last two years.

He has reasonable literacy and numeracy but needs help with understanding what words mean and the relative value of numbers.

He had his own debit card and his parents are cosignatories, helping him understand what things are worth or if he had enough money to buy something.

He finds complex instructions and unfamiliar settings difficult.

In 2016 he was on a disability pension and doing voluntary work.

10.55am: ASIC inaction

Ms Orr now turns her sights on ASIC.

What action has ASIC taken with ClearView in relation to the 303,000 criminal that were revlead at the hearing on Monday, she asks Mr Martin.

“We’ve not had further discussions at this stage with ASIC on that,” Mr Martin says.

Does he know if ASIC will be taking any action? No, he doesn’t know.

“Has ASIC indicated to you that it will recommend pursuing a criminal prosecution of ClearView for those 300,000 to 303,000 criminal offences?”

“No I’ve heard nothing to that effect.”

“Has ASIC indicated to you that it will take any action against ClearView in relation to the unconscionable conduct?”

“No”

“Has ASIC indicated to you that it will take any action in relation to the misleading or deceptive conduct?”

“No”

“Has ASIC indicated to you that it will take any action against Clearview in relation to its licence, because of any breach of section 912(1)a of the Corporationa Act?

“No it hasn’t”

”Do you understand that ASIC intends to take any further action against ClearView?”

“At this stage... no”.

Mr Martin steps down.

10.44am: Inherent conflicts

It’s clear Ms Orr is near a conclusion and she now is turning the screws.

Mr Martin concedes that ClearView’s representatives breached the prohibition on unconscionable conduct, breached the prohibition on misleading or deceptive conduct, and breached its duty of utmost good faith to policy holders.

He agrees the group’s pressure selling tactics and processes for objection handling were unfair to customers and led to customer detriment - and as a result the company did not do all things necessary to ensure financial services were provided efficiently honestly and fairly.

He admits to breaching 912(1)A of the Corporations Act, and to failing to ensure representatives were properly trained and complied with laws. He accepts that bonus structures would have encouraged sales agents to sell as much as possible sometimes at the expense of customers’ best interests. There was a failure to manage conflict between the interests of employees and interests of customers, he agrees.

The group has agreed to tell ASIC if it plans to restart selling through the direct channel.

Ms Orr asks if ClearView plans to re-enter the direct selling business. She gets an emphatic “no” from Mr Martin.

Ms Orr now sums up everything she has been asking about ClearView in a single question: “In your view is it possible to sell life insurance in outbound sales calls in a way that is both financially viable and legally compliant?”

“I find it difficult to understand how you can reconcile those things,” Mr Martin says.

He doesn’t understand how a customer could understand a complex area of financial services in a 20 minute phone call - although it would be different if a customer did research and then rang in.

ClearView's Gregory Martin appearing at the financial services royal commission. Picture: Supplied

10.36am: Talks with ASIC

Ms Orr turns to talks between ClearView and ASIC.

ASIC wrote to ClearView about resolving its investigation.

ASIC said it had concerns about potential contraventions of anti-hawking laws, the obligations of financial services licensees, and the consumer protection laws.

ASIC imposed eight conditions such as a consumer remediation program, providing copies of scripting and correspondence over the remediation program, and to tell ASIC if it planned to restart selling life insurance through direct channels.

ClearView agreed to the terms.

ASIC said a media release would be published and ClearView would have a chance to say if it had concerns about any factual inaccuracies first.

Then there was discussion about the remediation program, which extends to 32,068 policies sold by ClearView from 2014 to 2017.

This was essentially all the policies sold by ClearView Direct over that time.

Significant numbers of these policies had pressure selling tactics, misdescriptions of policy terms and other unfair sales practices, Mr Martin says.

ClearView is in talks with ASIC about 6000 customers where the policies were never completed.

For other customers, the company is trying to get bank account details to give customers money.

Not everyone will get a full refund of their premiums.

Anyone who kept their policy for less than three months (or five months for indigenous postcodes) have been given all their premiums back. Then there are 9000 policies still in force, so ClearView has contacted the customers to say if they have any concerns the company would review their call.

Ms Orr wonders why the company couldn’t refund the premiums and keep the policies on foot?

Mr Martin says that could be a methodology but it’s not what has been agreed with ASIC.

10.26am: Deficient processes

An internal ClearView document warns the quality assurance team wasn’t well resourced.

ClearView’s Mr Martin says the QA team wasn’t focused on pressure selling, and was instead looking at personal advice, misdescription of products, but not some of the “subtle points that we have been talking about”.

Ms Orr suggest pressure selling is “not a subtle thing to pick up, is it?”.

Mr Martin. “No sorry… those sales techniques, they weren’t focused on or they weren’t measuring.”

He found out later that agents were starting to “game that”.

The document warns there was no expertise in script writing.

Mr Martin said the company had tried to employ experienced people in to run a direct business, but found they didn’t have the skills to do the job properly.

The document warns there were concerns about the quality of QA performed.

Mr Martin said the QA staff lacked qualifications and the direction they were given was poor.

Ms Orr: “They lacked qualifications, they lacked experience, they lacked supervision and they lacked resources?”

Mr Martin: “Yes.”

Ms Orr: “The quality assurance function at ClearView was hardly a quality assurance function?”

Mr Martin:” No, it was weak.”

The staff who oversaw compliance had life insurance experience but there were issues with escalation.

The internal document warned inaccurate quality assurance data had been provided due to stretched resources, little attention to detail and manual nature of QA processes.

It was not possible to say what the level of compliance was in the direct sales business.

The general manager of direct sales had experience and skills in direct sales but less experience in managing a direct business and potential gaps in the areas of regulation and compliance, the document warns.

Mr Martin accepts there were very significant deficiencies in ClearView’s compliance programs and processes that were a significant contributor to the 42 pressure selling calls the commission considered yesterday, and beyond.

10.18am: Quality assurance

Focus turns to the quality assurance team, which was not picking up pressure selling.

The QA team was focusing on “flagged” agents, such as new agents and agents who already had compliance breaches.

Agents who knew they had not been flagged were more relaxed and compliant with compliance requirements, Mr Martin concedes. Agents who knew they were flagged tended to become more disciplined.

When ClearView found out about this, it planned to move to a 100 per cent review of all calls.

This was after ASIC had been reviewing 42 problem calls.

But the group never got to a point where it was reviewing all sales calls, as it decided to quit the business.

The commission sees an internal assessment of the ClearView Direct business that warns there was an insufficient division between the sales team and the quality assurance team.

The head of contact centre delivery was responsible for both sales and quality assurance, which was a conflict as sales were prioritised ahead of compliance.

Mr Martin agrees that quality aussrance staff were not sufficiently independent.

After ASIC became involved last year ClearView decided to separate the compliance and sales staff.

Why wasn’t the quality assurance team independent from the sales team from the start.

Mr Martin: “on reflection it should have been… we just made a mistake.”

Ms Orr: “ClearView never prioritised compliance, did it, Mr Martin.”

The Direct team did not prioritise compliance, he concedes, something reflected in the decision to put the quality assurance team in with the sales team.

10.11am: ClearView’s culture

Were there any consequences for the ClearView head of direct sales for trying to circumvent regulatory barriers by packaging a sales incentive scheme as an educational trip, Ms Orr wonders?

There were not, Mr Martin says. He was focused on shutting the business. “It just wasn’t going to happen,” he says.

He doesn’t know if any disciplinary action was discussed between the managing director and the head of direct but as far as he knows, the company didn’t take any action.

He concedes this was not a satisfactory response.

Ms Orr raises an interview ClearView CEO Simon Swanson did with The Australian, in which he said ClearView had a strong positive culture that champions the client.

But the document before the hearing “is not representative of the culture at all” and is the antithesis of such a culture, Mr Martin concedes.

Simon Swanson, CEO of Clearview.

10.07am: Ticket to Queenstown

Ms Orr turns to “random incentive” days.

Internal emails are displayed to the commission with a staffer introducing a random incentive day.

“I want this joint pumping with belling, clapping and SALESSSSS,” the email reads. “Let it rain gift cards!!!!”

“1st sale for the day get’s a ticket,” the email says.

ClearView’s Mr Martin agrees this is a way ClearView incentivised sales agents to sell lots of policies.

Another internal document covers incentive campaigns saying that the company believed “an injection is required to stimulate the team and revive the cultural pulse”. It refers to a sales initiative with a prize as a travel package to Queenstown with accommodation and entertainment.

The document says that “this is not a junket or a celebration, it’s a considered investment into the build out of a Direct business model for ClearView”.

Mr Martin: “It was just inappropriate activity.”

At this time he started to understand “the culture in that business was not what we thought,” he tells Ms Orr.

He did not like the language in the campaign.

The internal document says it is hard to measure the return on investment, but the monetary benefits associated with reducing turnover would be greater than doing nothing ie banking the money.

Mr Martin said it reads as if someone was trying to sell to senior management something that was just wrong.

He thinks the head of ClearView Direct wrote the document.

Ms Orr suggests the head of Direct sales in ClearView knew this was conflicted remuneration - a breach of the FOFA reforms, a breach of the law, and tried to package it “deceptively” as a training or educational trip.

Mr Martin said the thought that this staffer thought it could be a breach and decided to circumvent “was the thing that concerned me more”.

What did Mr Martin do when he found out about it?

“I went and visited the MD and the CFO and said ‘over my dead body’ or words to that effect.”

The incentive campaign did not proceed.

‘Over my dead body’ - ClearView’s Martin on reaction to NZ trip offer circumventing regulations

9.59am: Sell at all costs approach

The commission is listening to a recorded sales call by a ClearView agent.

The customer asked to be sent details, and the agent quickly responded that the company could provide cover immediately and then send policy documents, before asking if the customer would like to proceed with signing up for the policy.

Counsel assisting Rowena Orr QC wonders why it was so important to ClearView to sign customers up immediately?

ClearView’s Gregory Martin said it wasn’t important to ClearView.

Was it because if people had time to understand the products they might not buy them?

Mr Martin: “It seems to be that was the training that was given to them yes.” He adds that customers signing up for contracts they don’t want is not in CLearView’s interests. “It was poor for the customer, terrible for the customer and of no economic value for ClearView either so it was silly.”

He agreed the ClearView Direct business didn’t want to give people time to reflect or consult a partner before making a purchase, and that the objection handling system was aiming to wear customers down or side step them. He agreed the business had a sell at all costs approach.

9.52am: Mr Martin returns

Senior counsel assisting the commission Rowena Orr QC continues to grill ClearView’s chief actuary and risk officer Gregory Martin about training for ClearView sales agents.

She displays the company’s objection handling workbook.

If a customer said “I want to think about it” ClearView sales agents were trained to deflect the objection by saying they would send out details for the customer to read over. “Putting the cover in place today means you will have the peace of mind that you’re covered as soon as you hang up the phone,” the handbook reads.

Mr Martin is unsure how widely the training document was used. But he accepts that it’s a ClearView training document from early 2014.

He concedes that sales agents were told to let customers know they could read policy documents after signing up and admits that was an entirely inappropriate way of conducting the sale.

9.30am: Preview

Life insurer ClearView’s chief actuary and risk officer Gregory Martin will return to the stand this morning to face questions from senior counsel assisting the commission Rowena Orr QC.

Mr Martin yesterday admitted the company had breached criminal anti-hawking laws more than 300,000 times. Its sales agents’ high-pressure tactics were exposed, as was a plan to stop selling “limited value” products to poorer Australians and instead target more affluent customers with a “top end” offer.

Life insurance will be in the crosshairs all this week, with the hearing also revealing that some of the largest groups institutions paid $6 billion in commissions over the past five years..

Next to take the stand will be Grant Stewart, expected to be a consumer witness.

Then Freedom Insurance chief operating officer Craig Orton will appear. Freedom shares have halved in recent weeks since it was named to appear at the royal commission, wiping out about $50m in shareholder value.

The company is reviewing its options after corporate regulator ASIC told life insurers to shut outbound sales centres or face legal action, as Freedom is mainly an outbound direct insurer that earns most of its revenue from commissions.

Royal commission insurance round hearings