Banking royal commission: Sixth round rings with $6bn bang and a long list of admissions

More than $6bn in life insurance commissions has been paid to financial advisers over the last five years, inquiry hears.

03/08/2018 POOL PICS Royal Commission into misconduct in the Banking, Superannuation and Financial Services Industry Commissioner Kenneth Hayne makes his opening comments.Picture : David Geraghty / The Australian.

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scandal-ridden life insurance sector, including more than $6 billion of commissions for advisers in five years, out-of-date medical definitions, pushy sales culture, unsolicited and misleading sales calls and secret surveillance that further deteriorated claimants’ mental health.

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

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

The proceedings for the inquiry’s sixth round of hearings in Melbourne’s Federal Court on Monday opened with detailed admissions of misconduct and conduct falling below community expectations made by the industry ahead of the public grilling of executives.

“Exploitative practices” such as “misleading advertising” and “cold calling” were identified by the Consumer Action Legal Centre as problems affecting the direct, or outbound, life insurance model, Ms Orr said.

Moreover, customers making claims could also suffer “claims fatigue” or “claims shock” when dealing with seemingly endless bureaucracy to make a claim or when their policy falls short of expectations, Ms Orr said.

Follow the royal commission hearings via out live blog

Mr Orr also foreshadowed the likely areas of overhaul for the sector, which included the current exemption for life insurance claims from laws that require companies provide services “efficiently, honestly, and fairly” and the failure of the industry’s self-regulation through the General Insurance code of conduct and the Life Insurance code of conduct.

Ms Orr asked whether it’s appropriate that the handling of insurance claims is largely outside of the jurisdiction of the Australian Securities & Investments Commission, whether the unfair contracts regime should apply to insurance contracts and whether the insurance codes of practice should be treated like a similar code for banks.

Life insurers were asked to provide the royal commission details of all misconduct and conduct falling below community standards over the last decade, which provided Ms Orr with a list of conceded admissions and potential concessions of misconduct that she read out in the hearing room.

AIA Australia, the country’s largest insurer through superannuation, said it had failed to provide notices to up to 1000 customers it has cancelled cover when payments had stopped being received, that it had overcharged premiums by a factor of $775,000 for double-charging and for underpaying claims by $4m.

Allianz had to refund customers $650,000 after it overcharged policyholders who paid for insurance monthly by incorrectly debiting bank accounts after they reduced their level of cover. It refunded $1.8m to 11,700 customers who took out consumer credit insurance policies through car dealers had been overcharged, respond late to 6000 travel insurance claims, and had to repay $45.6m in poorly sold insurance through car yards.

AMP admitted to “possible” misconduct by churning life insurance customers by cancelling policies and setting up new ones to gain the maximum upfront commission, while it acknowledged delays in its assessment of insurance claims may fall below community standards.

Clearview Wealth earmarked 225 instances that might constitute misconduct, and acknowledged sales agents had mis-sold insurance cover, with one customer being provided with false or misleading information, another customer being coerced and a third customer being sold a policy they did not understand. Clearview said it had told ASIC it couldn’t verify it had been meeting anti-hawking requirements in the Corporations Act for more than 278,000 of its sales calls.

CBA said it had failed to meet community standards over CommInsure’s life insurance products. An ASIC investigation found CommInsure’s trauma policies had medical definitions that were out of date with prevailing medical practice. CommInsure updated its medical definitions. CommInsure searched for previously declined claims and paid more than 30 customers more than $4m in total. CommInsure agreed to pay $300,000 for misleading and deceptive statements on its websites about the extent to which customers could get trauma cover if they had a heart attack. The bank refunded 65,000 customers that were affected by wrongly sold credit card insurance about $10m.

While other insurers admitted misconduct or conduct falling below community standards to the commission, QBE made no such admissions. “However, it identified a number of issues in relation to insurance,” Ms Orr quipped. QBE will repay about $16m to customers who were sold dodgy insurance in car yards, and acknowledged that the Financial Ombudsman Service found systemic issues in the company, with more than 1520 open complaints had overdue responses. The company also had to refund $1.1m for overcharging the fire and emergency services levy.

REST super fund, which looks after the savings of lowly paid retail employees, said it had found members who were eligible for automatic reinstatement of the fund’s insurance cover did not have their cover reinstated.

Suncorp, which only sold its own policies through financial advisers, said FOS found systemic issues with its provision and handling of insurance, such as delayed dispute resolution, failure to provide information about internal dispute resolution, delays in implementing FOS-negotiated settlements, claims handling delays and failing to tell customers about their disclosure duty. It also found medical conditions in its life insurance policies that needed to be updated. Suncorp said a customer had alleged surveillance made their mental health worse and then Suncorp found inconsistencies in the way its surveillance policy had been applied. The Brisbane-based company is also remediating customers for add-on insurance through car dealers, paying $17.2m to customers.

TAL admitted misconduct in its sales practices and in misleading TV and online ads, with misleading and unsolicited sales calls, unconscionable conduct such as selling to vulnerable people, misleading calls attributed to a sales-oriented culture where staff were paid lower fixed pay and higher bonuses. TAL also said its blanket mental health exclusions fell below community standards.

Westpac said its general insurance arm breached code obligations for the timeliness of updating customers on the progress of home and contents claims. The bank also didn’t properly refund customers or charge them the right fees, the royal commission heard.

Insurance challenger brand Youi said it failed to tell customers that they could seek a review of their claim after a catastrophe or disaster and failed to provide information about complaints handling and failed to promptly send renewal notices to customers.

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