CBA’s CommInsure life arm charged

CBA’s CommInsure is facing 87 criminal counts of illegal conduct while selling life insurance.

CBA’s CommInsure set to face charges. Picture: Hollie Adams

Commonwealth Bank’s life insurance arm CommInsure has been charged with 87 counts of breaching criminal anti-hawking laws in the sale of life insurance, in the first criminal case to be launched by a reinvigorated corporate regulator following the banking royal commission.

The action marks the first of dozens of criminal cases being assessed by the Commonwealth Director of Public Prosecutors for potential criminal action against major Australian financial institutions.

The Australian Securities and Investments Commission confirmed the legal action on Friday, after it was revealed by The Australian newspaper hours earlier, and will take the Colonial Mutual Life Insurance Society - trading as CommInsure - to the Downing Centre local court in Sydney on November 19 to face charges for offering to sell insurance during non-compliant cold calls.

In a statement to the sharemarket acknowledging the charges, CBA said “CBA and CommInsure are considering the matter and CBA does not intend to comment further at this time”.

ASIC has alleged CommInsure unlawfully sold life insurance policies – branded as Simple Life – through unsolicited phone calls, and failed to take customers through product disclosure statements, as required by legislation.

CommInsure faces criminal penalty and a maximum fine of $1.8 million. The maximum penalty for each of the charges is $21,250.

“ASIC alleges that between October and December 2014, CommInsure, through its agent, telemarketing firm Aegon Insights Australia Pty Ltd, unlawfully sold life insurance policies known as Simple Life over the phone. CommInsure provided customer contact details to Aegon from CBA’s existing customer database,” ASIC said in a short statement.

“ASIC alleges that the calls to CBA customers were unsolicited, and that CommInsure did not comply with all of the hawking exceptions in section 992A(3) of the Corporations Act.

“As this is a criminal matter before the Court, ASIC will not be making further comment.”

In its second update on the implementation of the royal commission recommendations released last month, ASIC said the Commonwealth Director of Public Prosecutions was currently weighing up two potential criminal cases referred to it by ASIC following the royal commission. However, all 13 cases referred by Mr Hayne are under investigation, along with a further 29 probes relating to separate case studies.

Commonwealth Bank has been working on plans to remediate affected customers. ASIC last year moved to ban unsolicited phone calls for the sale of life insurance after finding widespread misconduct at several major and minor insurance companies.

Josh Frydenberg said people who had allegedly perpetrated “criminal misconduct” needed to face the full force of the law but pointed out the financial services sector was “critical to the lifeblood of our economy”.

“Obviously these are independent regulators who have collated the evidence and that will play out before the courts but it does underline how serious the allegations have been against some of those in the financial services sector,” the Treasurer said.

“This is not to damn everyone in the financial services sector, of course not, this is a very important part of our economy. Indeed, more than 400,000 Australians are employed in the financial services sector and represents about 10 per cent of GDP.”

The action is the latest bruising episode for CommInsure, which was lambasted during the Hayne royal commission for using outdated medical definitions to deny heart attack and breast cancer insurance claims, while ignoring the opinion of doctors and medical experts who warned about the practice.

Commonwealth Bank in 2017 offloaded the troubled life insurance arm to Hong Kong giant AIA Group but retains liability for any legal issues under the period in question.

During the royal commission, counsel assisting Rowena Orr said CommInsure may have breached section 12DB of the ASIC Act, which can be a criminal offence, by making false and misleading statements about coverage for heart attacks in its trauma policy.

It was also alleged to have breached its duty under insurance law to act with utmost good faith towards insurance customers and there was “a troubling lack of respect” on the part of CBA for the Financial Ombudsman Service.

CommInsure was hit by revelations in 2016 that it had been knocking back heart attack claims with decades-old outdated medical definitions of what constituted a heart attack.

The royal commission also heard revelations that CommInsure rejected the claim of a breast cancer victim by relying on an 18-year-old medical definition, from 1998, when the claim was made in 2016.

Kenneth Hayne’s inquiry revealed how CBA routinely ignored the medical advice of its own employed doctors, including its chief medical officer Dr Benjamin Koh who blew the whistle on the company’s misconduct in 2016, to update its definition of heart attack, and routinely rejected related claims because it would cost the company more money.

Before the media revelations, which were a major driving force behind the establishment of the royal commission, CBA had not updated its definition of heart attack since 2005 despite medical knowledge changing substantially.