Life insurer concedes ‘cold calls’ may have broken laws
LIFE insurer ClearView Wealth has conceded it may have broken criminal laws more than 300,000 times in its efforts to hawk insurance by "cold calling" Australian consumers.
And major finance companies lavished more than $6 billion worth of commissions over five years on financial advisers who directed life insurance customers their way, the banking royal commission has heard.
The revelations on Monday came in another day of startling testimony as the sixth round of hearings started in Melbourne. This round is focusing on misconduct in the insurance industry.
Counsel assisting the commission Rowena Orr, QC, said the life insurance sector would come under scrutiny this week before the focus swung to the general insurance industry next week.
Ms Orr on Monday shone a light on ClearView and detailed its lengthy talks with the corporate cop, the Australian Securities and Investments Commission, which two years ago discovered a raft of problems with the company's call centres.
ClearView had purchased lists of contact details for Australian consumers, she said, then staff cold called those people - telephoning without invitation - to pitch its insurance policies.
But the company failed to meet the legal requirements for cold calling prospective customers, the commission heard.
Under Australia's anti-hawking laws, life insurers need to jump a series of hurdles to sell products to consumers through a cold call.
Among them, they are obliged to provide would-be customers with product disclosure statements before a sale.
They are also obliged to offer consumers the option of joining the do-not-call register. Companies are theoretically barred from cold calling consumers on the register.
Questioning ClearView chief risk officer Gregory Martin, Ms Orr said: "ASIC wanted an explanation from ClearView on how ClearView satisfied itself of the various requirements of the anti-hawking provisions".
"Do you remember ASIC saying to you that ... they needed to know the extent of the possible contraventions so that they may form a view on what regulatory outcome they (wanted)?"
Mr Martin accepted there were between 300,000 and 303,000 breaches over the three-year period in question. Breaches are criminal offences.
"We just got that wrong. We made a mistake," Mr Martin told the commission.
ClearView, which also provides financial advice and wealth management services, shuttered its life insurance call centre after ASIC raised its concerns.
The commission heard that in 2013 and 2014, ClearView paid sales staff $8000 bonuses if they hit 250 per cent of fortnightly sales targets.
Ms Orr also questioned Mr Martin about ClearView's Melbourne call centre, which opened in 2014 and had targeted "poorer" people with insurance policies.
As soon as it opened, problems occurred as customers ditched policies, which made the centre unprofitable, the commission heard.
Ms Orr said the business was targeting poorer consumers.
"It was being sold to people who couldn't afford the product," she said. Mr Martin said: "We now know that is true, yes."
The call centre was closed in December 2015.
Ms Orr said there was an "emotional" pitch to poorer people and a "rational" approach to wealthier people.
She said ClearView charged more to poorer people for inferior products.
"The poorer people that you were telephoning were paying more money for a product of lesser value than the more-affluent people you were planning to target about superior products for a cheaper price," she said.
Mr Martin replied: "In terms of loss ratio, that's true, but if I could qualify that, it is similar to most products in the market".
"If you buy a larger amount of something, you would usually get a better price."
Ms Orr also underscored the importance of commissions to financial advisers, pointing out they were paid $6 billion in commissions over five years.
This included $1.16 billion paid by National Australia Bank's MLC business and almost $500 million by the Commonwealth Bank.
Nearly $600 million was paid by Suncorp, $750 million by Westpac and $700 million by Hong Kong-based AIA Group.
Another $330 million was paid by ANZ's OnePath business, $400 million by wealth manager AMP and $840 million by the Japanese group that trades as TAL.
Financial advice reforms in 2013 banned conflicted remuneration, but until January this year, life insurers could continue to pay financial advisers generous upfront and trailing commission for referring customers.