Banking royal commission live: insurance hearings

Allianz and its partners sold 2 million ‘misleading and deceptive’ travel insurance polices and haven’t told customers.

• 2 million policies
• 76 partners affected
• Offending material not removed
• A significant breach
• Website refresh
• Allianz’s Michael Winter appears
• General insurance examined
• Life insurance for the dead
• Trustee or insurer?
• ‘Junk insurance’

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.

Senior counsel assisting the commission Rowena Orr QC has been questioning Allianz’s Michael Winter.

5.20pm: Summary

Today began with REST’s Lachlan Ross returning to the witness stand to answer more questions from counsel assisting Mark Costello about the claim of a paraplegic person that was denied, before being presented with an accusation that REST was offering “junk” insurance inside its superannuation products.

It was then the turn of AMP’s group executive for wealth and customer Paul Sainsbury to answer Mr Costello’s questions. Mr Sainsbury argued for the validity of a distinction that meant that many non-smokers were unknowingly paying the same hefty policy premiums charged to smokers, costing them tens of thousands of dollars over many years.

During Mr Sainsbury’s evidence it was also revealed that AMP had been charging dead people premiums for life insurance.

The focus then switched to general insurance, bringing Rowena Orr QC back to the bar table. Home, travel insurance and add-on car insurance would receive particular attention, shetold the commission.

A travel insurance case study brought Allianz’s Michael Winter to give evidence. Revelations about misleading information on Allianz’s website started a thread that eventually led us to discover that Allianz and its unwitting partners had sold more than 2 million ‘misleading and deceptive’ travel insurance policies since at least 2012. It had also failed to properly tell regulators about the extent of the problem and still hasn’t told its customers.

But there are some “tensions”, as Commissioner Hayne put it, concerning a document that Allianz presented in evidence and so Mr Winter will have to return to the witness box in the morning, despite his earlier-stated wish to plough on this evening and “get it finished, please”.

The hearing will resume at the slightly earlier time of 9.30am on Tuesday.

4.51pm: Change of statement required

Ten days ago Allianz told ASIC that there were many misleading statements on the website. The information was only provided to ASIC due to it issuing a compulsory notice, Mr Winter admits.

The purchase path was disabled on 24 August, not 12 June as Mr Winter had said earlier.

Allianz also failed to notify ASIC that its investigations were completed by June and that the misleading statements had been on the website since 2012.

Allianz told ASIC that 2 million travel policies were issued during the period from December 2015 to June 2018, not the whole period that the misleading information was on the website.

But Mr Winter told the commission that only 605,000 policies had been issued during the time. These were policies sold direct by Allianz, Mr Winter clarifies. He says he’s relied on Craig Dalzell, AWP’s CEO, for the data.

But why did he limit his response to the period 2015 to 2018. Is the figure of 605,585 policies incorrect? Mr Winter said he enquired on that number previously but admits it is incorrect.

So the correct figure is in excess of 2 million. That’s another change that’s needed to be made to his statement then.

Ms Orr finishes her questioning.

But Commissioner Hayne puts it to both Ms Orr and counsel for Allianz that there may be some “tension” in the evidence that warrants further exploration.

So despite his wish to be done with it all tonight, Mr Winter will be back in the morning.

4.33pm: 2 million policies

On 30 August ASIC asked for another update and sent out a notice requiring Allianze to produce information on the website and purchase path. Allianz responded 10 days ago.

Mr Winter, in his response to ASIC, said partner websites contained potentially incorrect information. When did Allianz work out that this issue definitely affected the partner websites? Quite quickly, Mr Winter says; around mid-June this year.

Did Allianz know before the letter dated 20 July 20. Mr Winter doesn’t know, he can’t be certain... he thinks he must have the dates confused.

In the letter he told ASIC that 10 per cent of total sales of travel insurance was purchased through the pathway. Does that mean that the potential number of customers could be 10 times higher?

Over 2 million policies were sold during the period, Mr Winter says, but Allianz hasn’t narrowed down the number of impacted customers.

4.29pm: Problems back to 2012

In June emails between Allianz and AWP’s legal counsels suggested there may have been misleading information on the website prior to 2015.

Ms Orr brings up an email from June that says defective information about the travel product was on the website in July 2012 “from day one”. The purchase path was also defective, it says.

ASIC’s deadline for more information was July 20th. In the lead up to the deadline there was another meeting with Allianz, AWP and Allens. The minutes from that meeting on July 17 show a letter had been drafted to provide a “non-specific” response to ASIC. Mr Winter isn’t certain what that means, he wasn’t at the meeting. Minter

The day after, internal Allianz emails between legal counsel say Minter Ellison had reviewed the new website in 2015 and had raised concerns about the use of the word “unlimited”. But the website went live anyway.

The letter that went to ASIC on July 23rd (not by the deadline of July 20th) says the investigation is ongoing. Mr Winter provided some more detail in the letter on the investigation - Allianz is investigating the number of customers affected, it says.

Why didn’t Allianz tell ASIC there had been misleading information on the website right back to 2012? Mr Winter doesn’t know, he says he wasn’t aware of the earlier date when he sent the letter.

Ms Orr notes the time and says she can finish questioning Mr Winter by about 4.30, but leaves it up to the commissioner as to whether to do that, or to come back again in the morning.

Commissioner Haye says it’s actually up to Mr Winter.

“I can stay all night if I need to. I would like to get it finished please,” a somewhat harried Mr Winter says.

4.15pm: 76 partners affected

In June this year Allianz decided that the misleading content that affected its own purchase path would also affect the purchase path of all 76 of its partners. It hadn’t disclosed this to ASIC or its partners.

A meeting between Allens and Allianz in June outlined that AWP was to provide a timeline for its reviews of the partner websites. The CEO of AWP told Mr Winter that he thought they could fix the content quicker than taking the information down “with less impact”.

He meant impact on the bottom line, not on customers, didn’t he, Ms Orr says. Yes, Mr Winter agrees.

Mr Winter supported the idea of keeping the websites up. He says he took advice and made the decision based on the fact that they were going to fix the issue quickly. This is despite knowing that the partner sites all contained incorrect, misleading information.

4.06pm: Legal advice

In November 2017, Allianz introduced a compliance transformation program. A new breach review committee was established in May this year and it immediately considered the website statements. At that meeting the committee decided to report the matter to ASIC. It reported the breach in June.

The letter to ASIC said Allianz had identified seven matters that may be considered similar to this breach. The earliest was from 2011. But there were another six similar matters that Allianz had already reported to ASIC over that period.

Ms Orr says there were actually 46 other similar matters that Mr Winter was informed of but didn’t report to ASIC.

Ms Orr asks if Mr Winter thinks it’s important to be open and honest with the regulator? Yes, Mr Winter says. One-word answers have been frequent during this session.

Mr Winter says he didn’t mention these other incidents because a decision was made just to include the major incidents.

The letter to ASIC said the breach lasted from December 2015. ASIC’s response was that it asked for more information by 20 July 20.

In June, Allianz disabled the travel insurance part of its website. This was based on the length of time and the failure to act, Mr Winter says.

The external law firm, Allens, also raised concerns that there was misleading information on Allianz’s partner websites.

The minutes of a meeting at the time show that there was a sense of urgency because the website pages were no longer live, so were costing AWP and Allianz money, Ms Orr says.

Mr Winter denies the travel insurance pages were taken offline in the light of advice from Allens.

3.52pm: 600,000 travel insurance policies

Ms Orr asks Mr Winter to describe Allianz’s culture. Does it take compliance seriously? Yes. But we don’t see that in this series of events, Mr Winter concedes.

It wasn’t taken seriously enough to spend $30,000 to get a quick review done or report the issue to ASIC, or take the misleading statements down, it’s suggested to him by Ms Orr.

At Allianz, it’s more important to protect the bottom line than protect the customer, Ms Orr says. Mr Winter accepts that in this instance, this was the case.

Between November 2016 and May 2018, Allianz engaged an external law firm to do yet another review of the travel insurance pages. How many reviews is that now, it’s hard to keep track...

The external review found 39 misleading statements in the travel pages.

Most of the misleading statements date from 2012, we hear. So they weren’t introduced in the new website at all. They weren’t identified back then and weren’t fixed until 2018.

Mr Winter says there were failings in reviewing website content and it’s reviewing the policy at the moment.

From 2012 to 2018 it said unlimited overseas medical benefits applied. This was incorrect. Allianz is currently quantifying the impact of these misrepresentations on clients. Mr Winter says Allianz will soon meet with ASIC to determine a remediation program.

Since July 2012, the webpage for the comprehensive policy said “wherever you’re travelling” but there was an exclusion list for areas that DFAT had listed travel warnings. Mr Winter doesn’t know how many customers were affected.

Allianz took down the misleading statements on June 6, 2018.

AWP sold more than 600,000 travel insurance policies during the period that the misleading statements were on the website. 22450 claims have been made under those policies.

Mr Winter doesn’t know how many people were affected by the misleading statements but again says Allianz is close to getting ASIC approval for a remediation program.

Allianz hasn’t yet let customers know that any of this occurred. He expects to inform customers after agreeing the remediation program with ASIC.

We hear that no one has faced any disciplinary consequences as a result of these issues. It hasn’t been considered, Mr Winter says.

3.35pm: Offending material not removed

By November 2016, when the review was completed, it was almost a year since the website had been live with the misleading and deceptive information.

Did Allianz give AWP a timeframe on how to fix the travel insurance pages? No, Mr Winter says.

Allianz also hadn’t told AWP of any of these issues prior to it giving AWP the issues list in November 2016. Why didn’t Allianz just fix the pages, Ms Orr asks. Allianz should have fixed it, Mr Winter says.

By February 2017 there still hadn’t been a response from AWP on the issues list so Allianz followed up. Again there was no sense of urgency in the email sent to AWP.

AWP returned the issues list with comments in May 2018, Mr Winter says. Almost 18 months after Allianz asked for them. And the misleading information remained up on the website throughout the period. The delay was because AWP failed to prioritise it, Mr Winter says.

After Allianz followed up with AWP in February 2017 it wasn’t mentioned again until a status update was requested in July 2017. It asked for status updates at a further 13 meetings between Allianz and AWP, it was a standard agenda item. No deadline was ever set.

In June this year the CEO of AWP sent an email to Mr Winter. He says AWP sent the issues list to an external law firm in June 2017 for review. That review was completed in February this year and then AWP had to review that feedback. In March 2018 AWP produced a version of the website with the changes that were needed. That was given to Allianz in May this year and a member of the legal team then realised that the misleading and deceptive content had never been removed from the website. The matter was then escalated.

Why wasn’t the matter escalated before then? It shows a poor understanding of Allianz’s responsibilities in the AWP relationship, Mr Winter says.

He says that AWP should have realised the matter was urgent despite no one at Allianz telling them it was urgent. And despite Allianz itself not treating it as urgent.

3.20pm: 10 month review

The internal review took about 10 months to complete rather than the weeks that the solicitor said it would take if reviewed externally. The solicitor identified a further 28 issues related to travel insurance content.

When Allianz was ready to prepare a rectification plan for the content, did it reconsider whether or not to report to ASIC, Ms Orr asks. No, Mr Winter asks.

Should it have been reported to ASIC? Yes, Mr Winter admits.

From at least May 2016 it knew there was misleading content on the travel insurance pages but never considered taking them down while fixing the issues.

Mr Winter says they didn’t consider it. That demonstrates Allianz did not prioritise compliance with the law, Ms Orr says, Mr Winter agrees.

Allianz’s legal team created a proposed rectification plan in November 2016. Allianz wanted AWP to go through each item and determine whether the statement was inconsistent with the product description statement, whether it was missing significant qualification but could rely on the pds. There was no mention of it being an urgent request.

One of the issues identified was that Allianz said it would provide cover “wherever you’re travelling, whatever your budget”. It was a misleading and deceptive statement, Mr Winter agrees.

Another statement said its basic travel cover provided unlimited cover for medical expenses, even though it would only pay $1000 for certain medical expenses. Mr Winter agrees that this was a misleading and deceptive statement.

Still Allianz made no move to take down the travel insurance pages or report the matter to ASIC. It should have, Mr Winter says. The only action ASIC took was to send the rectification plan to AWP “for action”.

3.08pm: External review knocked back

When the decision was made not to report the matter to ASIC in May 2016, the review of the web pages was ongoing. Allianz prioritised home and car insurance over other types of insurance because of the amount of content and the number of people who visited those pages, Mr Winter says.

A February 2016 email from Allianz’s solicitor outlines the cost estimate for an external legal review: $25,000-$30,000. A couple of days later the solicitor followed up on the cost approval for the external legal work. The general manager of Allianz direct said he was waiting for Mr Winter to review the cost. He said an internal review would be preferable. The solicitor then said she would spend two days a week reviewing the content. She would prioritise home and content, she says in the email.

Mr Winter doesn’t recall if he gave approval for external review. He thought it was better for the corporate solicitor to work on it two days a week until it was done. That was the wrong decision, Mr Winter admits.

3.00pm: A significant breach

The committee took the view that there was a lack of understanding of the compliance process, Mr Winter agrees. But the decision was taken not to report the breach to ASIC. Mr Winter says he’s familiar with the law that requires breaches to be reported.

Ms Orr goes back to the committee meeting and asks where a number of similar breaches were discussed. There’s no record of it being discussed and Mr Winter doesn’t recall. Was the impact on the financial services licence discussed? Mr Winter doesn’t recall.

There’s mention of the compliance being “robust” so that would mean they were adequate, he says. But they weren’t adequate.

On the dollar impact on customers, Allianz assumed it could make good on the policies but didn’t know if it could, Mr Winter agrees.

All of this suggests that this was a significant breach, Ms Orr states. Mr Winter doesn’t agree on the dollar impact to customers. For the rest he agrees that they could have been reported.

Not reporting to ASIC was the wrong decision, Mr Winter agrees.

2.43pm: Functioning but not robust

The review of the product pages should have happened before it went live, Mr Winter concedes.

Once it decided to undertake the review, all products except travel insurance were reviewed by April 2016. The travel insurance review was completed by November 2016. Why did it take so long? Mr Winter admits Allianz failed to give it the priority it needed.

The review identified a number of new issues, including misleading statements in regards to home insurance. A number of misleading statements were identified in relation to car, life, boat and travel insurance products.

There were 14 misleading statements in relation to home insurance, four in relation to car insurance, three in relation to life and one in relation to boat insurance.

On home insurance, some of those statements were removed in January 2016 but others weren’t removed until March 2016. One, on the renters insurance statement, was left up until April 2017 even though it was identified in January 2016. No, that’s not correct, we hear. Mr Winter believes his written statement needs to be corrected - the relevant item was removed from the website in April 2016. Mr Hayne is not impressed.

Ms Orr moves on. The home insurance page said Allianz guaranteed the quality of repairs, even though it did not guarantee that.

Mr Winter accepts that these are troubling representations to have on its website and they were contrary to financial services laws.

Each of these misleading statements was identified in the course of the review. Did Allianz report any of them to ASIC? No. But Mr Winter says Allianz considered reporting them and decided not to in May 2016.

Why did it take Allianz until May 2016 to consider making a report to ASIC, Ms Orr asks. Allianz needed to work through the process of identifying the errors and determining their impact.

We hear that lawyers for Allianz created a document in the lead up to Mr Winter giving evidence at the royal commission that was designed to reflect papers that were submitted in a risk and compliance meeting in May 2016.

Why didn’t they just submit the actual papers, Ms Orr asks. Mr Winter doesn’t know, he had nothing to do with preparing the document.

Was the website breach the only matter considered at the May 2016 meeting? No, Mr Winter says.

A document outlines the most significant errors on the website and says there were a further 120 unique errors “from minor to moderate”.

In his statement Mr Winter referred to far fewer errors. Ms Orr questions this and Mr Winter explains that some errors were present multiple times on the website but only listed as a single error in his statement.

The reasons given for not reporting to ASIC were that only limited refunds to customers were necessary and that Allianz had a “robust document compliance process”. The document records that it was “just not followed in this instance”. The decision relied on Allianz making good on product representations in the claims process, the statement says.

The causes of the misleading statements were given in the statement as the authors not following the correct process.

But in the lead up to the website going live it was listed as compliant.

Does it trouble you that the actions were regarded as compliant, Ms Orr asks. Yes, Mr Winter agrees.

Ms Orr asks if the compliance process was robust as Allianz claims. Mr Winter says it was functioning but not robust.

2.17pm: Incorrect information

We’re back after lunch and senior counsel assisting Rowena Orr is again questioning Allianz executive Michael Winter on the incorrect and misleading information on Allianz’s new website that was launched in late 2015.

Allianz’s solicitor was concerned that the Corporations Act disclosures were not present on the new website and there was a risk ASIC may find the disclosures were not adequately represented.

She pointed out further misleading content on the website in early 2016 such as in the ‘About Us’ page, which stated it was a global insurer. She said the insurance business in Australia was not backed by the German head company and she would be raising a compliance notice. Still, Allianz didn’t take down the misleading statements. This was because it was still being reviewed, Mr Winter says.

Another email from the solicitor points out new errors on the home contents page including reference to a benefit that ASIC had previously warned was misleading.

A compliance incident was raised. This was almost two months since the website had gone live but Allianz had done nothing to take down the incorrect information.

2.01pm: DiNatale lashes NAB, calls for Thornburn to go

Outside the commission, Greens leader Richard Di Natale has lashed NAB CEO Andrew Thorburn and called for his resignation after the banking royal commission claimed another scalp.

NAB today announced that senior executive Andrew Hagger, who faced a grilling at the royal commission over the bank’s ‘fee for no service’ scandal, will exit the bank after 10 years.

“The buck is supposed to stop with the chief executive, so why is Andrew Hagger, NAB’s Head of consumer banking, the only one taking responsibility for the bank’s ‘failures’ and stepping down? This is just not good enough,” Di Natale said.

“For years, Thorburn has overseen the kind of behaviour we have all been horrified to see coming out of the Royal Commission. As head of NAB’s retail bank he was reportedly aware for more than a decade that non-bank employees were paid more than $150 million to generate $24 billion in NAB home loans. As CEO, he steered the ship during the ‘fee for no service’ scandal and the list goes on and on.”

“My question is this: why is everyone responsible for the bad behaviour except the boss?

Di Natale again called for a break-up of the big banks and an overhaul of the regulatory environment.

“The ACCC needs to replace ASIC as the corporate regulator and the banks’ financial services and superannuation arms need to be separated from banking functions.”

“Until we let banks be banks again, and empower a regulator who isn’t hopelessly compromised to oversee them, we won’t see the kind of change the Australian people are crying out for.”

13.03pm: Website refresh

In 2015 Allianz decided to update its website. Most of the content remained the same, the update was largely focused on layout and design.

But there was a small update to content.

Allianz’s process requires that any new webpage goes through a legal review. This process was followed in 2015 and the new content was approved. But the process wasn’t used to review the website as it would look when made accessible to the public. This was an oversight, Mr Winter says.

On the day the new website went live, the digital business to consumer (“B2C”) manager sent an email to a number of Allianz staff saying testing was taking place and the only issues identified were related to a few of the images.

Later that day, one of Allianz’s corporate solicitors said she had completed a review of the website and noted that multiple disclaimers were placed in collapsible boxes. She said there was a risk that it wouldn’t be clear which disclaimer related to which product. She asked for some changes to be made to the website.

More than a week later, the solicitor sent another email and noted that the Corporations Act disclosures were not on the website and that there was a risk ASIC may find the disclosures were not adequately represented.

So the issues she identified were not dealt with before the website went live. Allianz didn’t take down the website or revert to the old website. It wasn’t possible to go back to the old website, Mr Winter says. Taking down the relevant parts wasn’t considered appropriate, he adds.

The plan was to rectify the issues.

But before we have a chance to learn more, Ms Orr suggests to the commissioner that might make an appropriate time for a break.

12.53: Checking content

Allianz doesn’t own AWP, but both are ultimately owned by a German company, Allianz SE.

Ms Orr takes us to the agreement between Allianz and AWP. Both companies hold Australian financial services licences and Allianz is authorised to issue general insurance products.

The agreement, which is related to travel insurance, says Allianz authorises AWP to develop policy wordings and policy statements to determine premiums, market products and administrate services in relation to the products. AWP collects the premiums and pays a percentage to Allianz.

AWP sells travel insurance through a number of channels: through their own website, a call centre, travel agencies, financial institutions, websites of third parties such as airlines, credit cards and insurance brokers. The majority of the policies are sold through third party websites or “partners”.

There’s an agreement between AWP and the “partner”, which agrees to distribute the policies on its website. AWP handles the claims and collects premiums but the insurance is issued by Allianz. Mr Winter doesn’t know how many partner websites there are but believes it’s about 70.

AWP is responsible for the content on the websites but Allianz is responsible for checking it complies with the law.

There are “significantly less” purchase paths than websites, Mr Winter says. AWP is responsible for the content on the purchase paths and Allianz is responsible for checking it complies with the law.

12.44pm: Allianz’s Michael Winter appears

The first witness up is Michael Winter, the chief GM for retail distribution at Allianz.

Mr Winter will give evidence on Allianz’s travel insurance and also on incorrect and misleading content on its website.

Allianz had 24 per cent of the travel insurance market in 2013-2014 and 25 per cent in 2017-18. The number of insurance policies it has sold has decreased over the past 5 years: from 1.5 million policies in 2014 financial year to 770,000 policies in the 2018 financial year. But the amounts of premiums paid has increased from $189 million to $257 million. Why is that, Ms Orr asks.

The nature of the product changed in the period, Mr Winter says. One of the products was covered under a group credit card business with two new financial institutions, so that skews the number of policies.

Is it becoming increasingly common for people to access travel insurance through credit cards, Ms Orr asks. Yes, Mr Winter says.

Travel insurance through credit cards provides lower cover, a “basic” cover, Mr Winter says. And it excludes cover for pre-existing medical conditions.

Allianz also sells travel insurance through its website and an underwriting agency, AWP, as well as through travel agents and when consumers by it online when booking flights, for example. Allianz also sells travel insurance through banks, credit unions, and mortgage brokers.

12.33pm: Claims case studies

The case studies to be examined include incorrect and incomplete statements made by Allianz, claims related to add-on car insurance and the conduct of insurers in the handling of claims related to natural disasters.

One of the case studies relates to the conduct of Youi and to its conduct in dealing with claims over damage caused by tropical cyclone Debbie.

The Insurance Council of Australia and the Financial Services Council will also give evidence.

12.28pm: Consumer concerns

Ms Orr turns to what the commission has heard from consumers.

Of 8977 submissions received, 620 were related to general insurance. The three most common policies referred to were: home and contents, car insurance and travel.

Many submissions referred to delays in claims and refusals to pay out. There were a number of submissions related to complaints about the third parties undertaking repairs. Some submissions referred to pressure on claimants from insurers to accept cash settlements that were below the claim amount.

Claims handling was a common concern raised by the consumer bodies, Ms Orr says. A number of consumer organisations raised concerns about add-on insurance. These products are often expensive and low value, the commission hears. Add-on insurance through car yards will be one of the case studies heard this week.

ASIC told the commission about enforcement action it has taken on 32 occasions since January 2008 against insurers. ASIC also imposed conditions on 2 insurers and accepted an enforceable undertaking from an insurer in relation to the sale of unsuitable insurance policies. ASIC requested remedial action from general insurers on 26 occasions.

Collectively the amounts being remediated by insurers for add-on car insurance sold through car dealers is in excess of $118m.

FOS reported a 38 per cent increase in the number of disputes it received in the 2016-2017 year related to general insurance. This is due to higher claim numbers, organisational changes and the impact of tropical cyclone Debbie, FOS said. The main issue was the extent of cover due to the definition of “flood” and “storm”.

12.09pm: General insurance examined

We’re back after a short recess and the hearing and senior counsel assisting Rowena Orr outlines the issues that are to be examined this week related to general insurance.

Case studies will include claims on home insurance policies following natural disasters that were deferred in the fourth round of hearings.

Ms Orr begins with an overview of the general insurance industry and the various types, including motor, home, contents, pet, and indemnity insurance.

The hearing will focus on home insurance, travel insurance and add-on insurance.

The top five insurers are listed as Suncorp, Insurance Australia Ltd (IAG), QBE, Allianz and Insurance Manufacturers Australia, Ms Orr says.

General insurance products are sold in two ways: directly or through an intermediary.

Where it is sold directly it is generally sold without personal financial advice. General insurance is excluded from the ban on conflicted remuneration, which has led to “reverse competition” on the sale of add-on products to intermediaries, Ms Orr tells the commission.

From 2013 to 2015, ASIC found insurers paid more than $600m in upfront commissions to car yard intermediaries for the sale of add on insurance products. Insurers collected $1.6bn in the same period on those products and paid out $144m in claims.

Separately to monetary benefits, the general insurance companies were asked to provide information on payments made to authorised representatives

Alliance paid more than $240m to such entities, IAG paid more than $500m, QBE paid more than $800m. This is separate to the amounts paid to intermediaries.

Ms Orr turns to the handling of claims. Once relevant information has been gathered on a claim it is assessed against the policy terms. The insurers were asked to identify the most common reasons for a claim to be rejected.

11.52am: No cause for action

In June 2018 AMP sent a letter to APRA and ASIC on the issue being a possible breach.

APRA rejected the letter and asked for a proper breach notification. AMP sent a formal breach notification. Was that in error, Mr Costello asks.

It was lodged without the investigation being complete, Mr Sainsbury says.

Has AMP identified how many people have delinked from an employer plan and do not have insurance under mysuper? Mr Sainsbury says the number has been quantified. AMP’s update on the breach notification says 1600 members were affected and it is in the process of investigating each one.

Is it right that this issue wouldn’t have been investigated if not for this member’s complaint? Mr Sainsbury says apart from this one member there would be no cause for action on the other members.

11.46am: Complaint to the CEO

On December 6 last year AMP’s then CEO Craig Meller received a complaint relating to group life insurance.

Mr Costello summarises the letter from the wife of an AMP member, who has been diagnosed with a serious medical condition. The member has become aware there’s no life insurance attached to his mysuper account. She says she thought mysuper was required to have life insurance attached as default. She asks how this could happen.

This was a de-linked member, Mr Sainsbury says. The employer had alternative insurance arrangements but on the de-linking, no alternative insurance was picked up.

Mr Sainsbury believes the member was in a category that meant he wasn’t offered insurance. He doesn’t believe that was a mistake.

Mr Meller referred the matter to the office of the customer advocate, which provides a final review when a member is not happy with the resolution of complaints. The customer advocate took the view that it was an administrative error but Mr Sainsbury says the trustee disagrees and believes it was appropriate and that the member had opted out of insurance when he was de-linked.

The complaint led to an investigation, which is not complete. AMP’s current position is it does not believe it to be a breach. The group believes the outcome that was delivered for the member was a very good outcome, Mr Sainsbury says.

“You think it was a very good outcome, but you don’t think it was the right outcome?” Mr Costello responds, somewhat bemused.

While he has not had the share of the spotlight of senior counsels assisting the commission Rowena Orr and Michael Hodge, both QCs, Mr Costello has proved similarly methodical and assertive.

Counsel assisting the financial services royal commission Mark Costello. Picture: Supplied

11.37am: APRA and ASIC weren’t informed

Mr Costello reads out an email that suggests AMP had previously received complaints on the same issue in 2016. But APRA and ASIC weren’t informed. Mr Sainsbury says that’s because they were different issues.

The issue identified in April 2018 was that the amounts deducted hadn’t been refunded. In 2016, the issue was that the amounts were refunded at a different time - upon finalisation of the claim, not on notification of death. That was not breach reported and has still not been breach reported.

What does it say about AMP’s systems that the issue was identified in 2016 but an investigation was only launched in 2018, Mr Costello asks.

They are not the same matter, Mr Sainsbury argues. It was commenced as a result of the Royal Commission identifying CBA had charged dead members. AMP started asking whether it had done something similar and investigated, Mr Sainsbury says.

AMP identified 4645 customers had premiums deducted and not refunded, amounting to $1.3 million in premium refunds. That included lost earnings, Mr Sainsbury believes.

Does AMP’s conduct fall below community standards and expectations? Yes.

Has it charged for something it’s not entitled to charge, Commissioner Hayne wants to know. Yes, Mr Sainsbury acknowledges.

11.29am: Delays in stopping payments

Mr Costello brings up an internal email to the head of claims in 2016. It seems to suggest AMP knew of the premiums being deducted for dead people. So it wasn’t first raised in April, Mr Costello says. Mr Sainsbury disagrees

Stopping the premiums being charged when you’re notified the person is dead would seem sensible, Mr Costello says. Yes, Mr Sainsbury concedes, but AMP only stopped charging customers once the claim was paid out, not when they were notified of death.

Another email from June 2016 showed AMP was notified in February 2015 that a member had died but it was still charging premiums in 2016. Mr Sainsbury assumes a claim wasn’t submitted at the time. A refund would be given once the claim was finalised, he says. This is the way the system treats it today, he adds.

11.20am: Life insurance for the dead

In April this year, AMP Life identified that premiums were being deducted from deceased members’ accounts. An investigation subsequently commenced and identified system errors that showed AMP didn’t stop deducting premiums for life insurance even though the members were no longer alive.

In June the matter was reported to an AMP working group. Why did it take until June for the matter to be reported? Mr Sainsbury says it was a complex matter and took time to investigate. The committee in June determined to report the matter to APRA and ASIC.

The breach report from AMP details the issue. Has AMP encountered this problem with any other life insurer? No, it hasn’t, only with AMP Life, Mr Sainsbury says, but then appears to change his mind, saying in its latest investigation it had identified other insurers in which it had happened.

The investigation found 3124 members were affected, with $922,902 premium refunds owing. The investigation is still ongoing but Mr Sainsbury says it appears there are more refunds owing.

Somewhat incredulous, Commissioner Hayne wants to make sure he’s understood: “Charging premiums for life insurance to someone who was dead. That’s the position, isn’t it?”

11.15am: Trustee or insurer?

Mr Costello brings up an ASIC document that says trustees shouldn’t presume members are smokers. Mr Sainsbury can’t comment on whether that statement is appropriate, from a risk-pricing view.

Wouldn’t the trustee have a view on whether or not its members should be charged a higher premium, Mr Costello asks. Mr Sainsbury’s response is that trustees have to rely on insurers.

Is part of the problem that AMP views the questions from the perspective of the insurer and not the members, Mr Costello asks.

Mr Sainsbury says the trustee is looking to get the best outcome for its members.

So AMP trustee’s position is that ASIC is right, Mr Costello puts it to him. Mr Sainsbury doesn’t know. The trustee board would know, but Mr Sainsbury doesn’t know if they’ve considered it.

Mr Costello brings up an ASIC document that says trustees shouldn’t presume members are smokers. Mr Sainsbury can’t comment on whether that statement is appropriate from a risk-pricing view.

Wouldn’t the trustee have a view on whether or not its members should be charged a higher premium, Mr Costello asks. Mr Sainsbury’s response is that trustees have to rely on insurers.

Is part of the problem that AMP views the questions from the perspective of the insurer and not the members, Mr Costello asks. Mr Sainsbury says the trustee is looking to get the best outcome for its members. So AMP trustee’s position is that ASIC is right? Mr Sainsbury doesn’t know. The trustee board would know, but Mr Sainsbury doesn’t know if they’ve considered it.

11.08am: Smoking assumption reasonable

A letter from the tribunal to AMP details the member’s complaint: The member says he has been overcharged $66,000 but AMP’s own calculations show the member was overcharged $76,760.

AMP writes back to the tribunal saying the member was transferred to a personal account once he left his employer plan and the amount deducted for his extra death benefit was deducted at smokers rates.

Mr Sainsbury says yes, that goes to what he said earlier about the inconsistent understanding within AMP on the rates charged.

The trustee decision sets out the reasoning behind not refunding the premiums. It also addresses the criticism about the smoking status in the premiums charged and says it wasn’t required.

The tribunal found that after 2005 the trustee didn’t provide any further communication saying the insured was paying more than if he had declared he was a non-smoker. Mr Costello asks if, in forming a decision on how to deal with the complaint, the trustee had failed tell the member there was an additional premium being charged because of the lack of a declaration.

Mr Sainsbury says AMP could have done better.

The tribunal found that it was not fair or reasonable for the trustee to not refund the extra premiums. It said AMP would have to refund the additional premiums, with interest.

AMP paid back the money, Mr Sainsbury believes.

He says AMP could have improved its disclosure but it did provide the opportunity for a non-smoker declaration to be provided.

But AMP failed to tell the member a higher premium was being charged every year after 2005 without the member being informed, Mr Costello says. Mr Sainsbury doesn’t accept that AMP didn’t act fairly and reasonably.

Mr Costello goes back to the tribunal finding that AMP failed to act fairly and reasonably. Eventually Mr Sainsbury agrees with the finding.

AMP also failed to act in the member’s best interests, Mr Sainsbury accepts. But he doesn’t believe AMP failed to deal with the complaint fairly and reasonably.

Is it appropriate to assume a member is a smoker unless there’s a non-smoker declaration, Mr Costello asks. It’s reasonable, Mr Sainsbury answers.

10.49am: Splitting hairs over smoking

Mr Costello moves on to correspondence from AMP to the super complaints tribunal about the member’s issue.

AMP says the trustee is satisfied the member needed to complete a non-smoker’s declaration. It says it’s not the trustee’s practice to treat member’s as smokers by default. But Mr Sainsbury does not accept that that statement is inaccurate.

At the time they’re transferred from an employee plan, members are offered a standard rate unless they inform AMP they’re a non smoker.

We’re stuck on to the difference between a non-smoker rate and the hybrid rate.

The only difference is if someone completed a non-smoker declaration. But Mr Sainsbury and Mr Costello are arguing as to whether that effectively means there’s a smoker rate and non-smoker rate.

Eventually Mr Sainsbury agrees that the only difference is the declaration stating a member is a non-smoker.

Commissioner Hayne’s intervention appears to have helped him come to this conclusion.

AMP's Paul Sainsbury appearing at the financial services royal commission in Melbourne. Picture: Supplied.

10.44am: Inconsistent premiums

Mr Costello says the member then lodged a complaint with the tribunal.

He brings up an internal AMP email chain that made mention of it being “another” complaint on the issue, indicating it wasn’t the first time this question had come up.

The email says AMP Life has investigated the complaint and the response is the same, they will not be refunding the premium fees.

So AMP Life formed a view on behalf of the trustee about whether AMP Life as the insurer should refund premiums, Mr Costello says.

The email also says the member had multiple opportunities to challenge the premiums he was paying. But this complaint wasn’t about insurance, it was about the amount being paid for it, Mr Costello says. That’s right, Mr Sainsbury agrees.

The language used in the email sounds like it was considering the position of AMP Life as the insurer, Mr Costello says. Mr Sainsbury can’t comment.

Mr Sainsbury admits there was a lot of inconsistent misunderstanding of the premium rates applied and labels attached that turned out not to be true.

10.36am: Rates for smokers

Was there an actual smoker rate? There were three rates from 2006, Mr Sainsbury says.

Non-smoker, a “de-link” category, and a smoker category.

For a non-underwritten member there were only two rates. Non-smoker and a de-link category.

Mr Sainsbury is attempting to explain that the de-link rate (which Mr Costello believes is also a smoker rate) was about pricing-in risks alongside smoking.

But all a person needs to do to get the non-smoker rate is to complete a declaration. Assuming this, the only difference between the de-link rate and the non-smoker rate is to fill out a non-smoking declaration, Mr Costello says.

A de-link customer was in effect paying a smoking rate? I don’t agree, says Mr Sainsbury.

The only difference between paying the non-smoker rate and the other rate was saying you weren’t a smoker? That’s right.

“So nothing else matters?” Mr Costello asks. That’s right, Mr Sainsbury says.

There was no actual smoker rate? It’s misleading to the member to make them believe there was another rate that did not exist? Mr Costello asks.

Do you think there was any way a member could have understood this by reading the documents? It’s difficult to understand, Mr Sainsbury agrees.

Michael Roddan 10.26am: Smoker status

How long has AMP Life been the insurer for superannuation customers?

Well it was last reviewed in 1995, Mr Sainsbury says.

So 23 years ago.

We move on to smoking status of superannuation members.

Last week, the corporate regulator said the wealth management industry has been “unfairly eroding” the superannuation savings of members by defaulting them into high-premium life insurance policies designed to cover smokers.

The Australian Securities & Investments Commissionsaid on Friday it had got the super sector and the life insurance industry to stop defaulting members as smokers when there was an absence of information about whether they smoked or not. Smokers were charged significantly higher premiums than non-smokers, and ASIC said the rip-off “unfairly eroded” member retirement savings.

We hear of an AMP member who last smoked a cigarette when he was a 13 year old scout. He was paying $400 a month extra for being overcharged for being a smoker when he wasn’t and asked for a refund of his previous premiums.

In about 2005, people were “de-linked” into a standard cover with AMP where he was labelled a smoker. The financial planner found out in 2013.

The complaint comes from someone in “planner liaison” or someone in “product” in AMP asking for the refund.

An additional $72,000 in premiums has been paid due to the false smoker status.

Customers were offered a chance to “opt out” of being defaulted into being a smoker when they were “de-linked”.

The annual superannuation statements, up until 2013, didn’t disclose the smoker status of the customer.

Mr Sainsbury says this is not the case now.

Michael Roddan 10.17am: AMP’s Paul Sainsbury appears

Paul Sainsbury, head of wealth at AMP is taking the stand.

AMP is a royal commission frequent flier, so it will be interesting to see where this exchange goes.

Mr Costello starts by asking about AMP’s group insurance, which is provided on an opt-out basis to AMP’s superannuation customers.

Do you think it is important to act in the best interests of members when they claim, Mr Costello says.

We do, Mr Sainsbury says.

But AMP is the main life insurer for AMP’s superannuation customers? It is.

We have a look at the superannuation prudential standard (the rules governing super trustees) which sets out requirements that trustees conduct proper due diligence of their insurers.

From an earlier round of hearings, we learned that AMP’s super trustee was hamstrung and beholden to the interests of the other arms of the AMP conglomerate. The trustee was kept in the dark about the broader business plans and had little say in pricing or product choice.

Mr Costello focuses on the prudential standard rules requiring trustees do their homework on the fees, benefits and “appropriateness” of the life insurer chosen.

Is it appropriate for AMP Life, which is the administrator, to be tasked with ensuring compliance with the prudential standards? Mr Costello asks.

Mr Sainsbury says the company complies with the standards.

The standards include rules recommending replacement insurers. Isn’t there a clear conflict here?

Mr Sainsbury says staff are not conflicted and staff recommending insurance aren’t connected to AMP Life.

Michael Roddan 10.00am: Universal definitions

Mr Costello wraps up asking some policy-related questions. This is around providing standards definitions and forcing super trustees to chase claims on behalf of members.

Simple terms are preferable to complex terms and confusing exclusions, Mr Costello asks.

Yes I agree, Mr Ross says.

And this is the case, especially in the group (superannuation) context because the worker doesn’t have a financial adviser? Mr Costello asks.

Yes, Mr Ross agrees.

Do you think there would be any benefit in there being universal definitions for key words and exclusions? Mr Costello asks.

“Theoretically yes, would be my answer to that. How that would work in practice, I don’t know,” Mr Ross says.

Given that REST and other superannuation trustees have an obligation to do anything reasonable to pursue a claim, should they have a clause forcing them to do so? Mr Costello asks.

Mr Ross says they do already.

9.53am: NAB’s Hagger departs

NAB's Andrew Hagger leaving the financial services royal commission after hearings in August. Picture: Aaron Francis

Meanwhile, outside the royal commission, NAB has announced that Andrew Hagger will depart the company after more than 10 years as one of its most senior executives.

The former head of NAB’s wealth division appeared twice during the royal commission hearings, battling with senior counsel assisting Michael Hodge QC during the superannuation rounds.

Mr Hagger has become the highest-profile casualty so far of the financial services royal commission, falling on his sword after a series of disastrous outings for the bank at the hearings.

Mr Hagger, who was previously touted as a potential future NAB chief executive, said: “I take accountability for what has occurred on my watch, and accept that alongside successes were failures, including instances where we did not act with the pace required.”

Read Ben Butler’s full report.

Michael Roddan 9.52am: Junk insurance?

We move on to more general questions about REST and total-and-permanent disability insurance, known as TPD insurance. We’re investigating whether REST is charging its members for “junk insurance” they can’t claim upon.

It has three rules to qualify for a claim.

The first rule, if the member has been in gainful employment for 13 months, they need an expert to rule off on the claim to find that they are unable to return to work essentially ever, given the education they’ve had and the training they’ve received.

Someone who hasn’t been in gainful employment, they need to meet two other rules:

Either, they’ve lost two hands, two feet, or eyes, or a hand and an eye - and things like this - and can’t work.

Or, they need to be able to fail a “daily living” activities test: things like getting in and out of a bed or going to the toilet.

Do you accept a REST member could be very seriously injured and unable to return to their profession, but they don’t come into the definition of gainful employment, get denied from their claim, Ms Costello asks.

Mr Ross says REST will intervene if someone is very injured and can’t feed themselves, or something similar.

Does REST have any way to see if members are unemployed, Mr Costello says.

Mr Ross says if employers tell REST, then they do.

What if they don’t tell REST?

Mr Ross says, well then no, REST wouldn’t be told. But he admits REST would continue to charge the insurance, even though workers might be unable to claim on the policy because they don’t meet the criteria.

The insurance product would then become a “junk insurance product”? Mr Costello says.

“I don’t believe it is,” Mr Ross says.

Michael Roddan 9.39am: Correct decision

Mr Costello is back asking about the paraplegic customer, and whether it was wrong for REST to not lobby on behalf of the customer to get the insurance payout.

Super trustees have a duty to act on the fiduciary interests of members.

Has REST failed to do everything reasonable to pursue the claim for the member? Absolutely not, Mr Ross says.

“REST did everything it could have done,”

“It is rare for someone in their mid-20s to be so disabled that they are never going to work again,” Mr Ross says.

It turns out the customer was able to work again.

“It was absolutely the correct decision to decline the claim,” Mr Ross says.

“With hindsight, I wish we had done more. I think the correct decisions were made. In any case like this…I wish we could have got the benefit to the member sooner. REST is only interested in getting benefits to members who are entitled to them.”

9.32am: Preview

The royal commission is back for its 55th day of public hearings, with the back-end of a fortnight of hearings into the life insurance and general insurance industries.

On Friday, the royal commission heard industry super fund REST, which looks after the retirement savings of largely low-paid retail workers, used to have a clause ruling members would only have life insurance cover if they met a minimum balance requirement and their employer was making contributions. Cover stopped 71 days after they became unemployed and the contributions stopped.

One REST member became a paraplegic and initially was ruled eligible for a payout, but this was reversed because their previous employer had stopped making contributions and their new employer wasn’t making contributions to their REST account at all and collapsed into liquidation.

Counsel assisting the commission Mark Costello has been grilling REST’s Lachlan Ross about the issue, and they are back after the weekend.

At its crux, Mr Costello has been probing REST on the vulnerability of people who have insurance through their super, and the way it can easily lapse without their knowing.

Royal commission insurance round hearings

Friday 14 September: ‘A very unusual case’

Thursday 13 September: ‘This is absolutely bullying’

Wednesday 12 September: ‘May discriminate, impact profit’

Tuesday 11 September: ‘Warning signs were all there’

Monday 10 September: ‘I’d sack them’