The Hayne royal commission has handed down its Interim Report, saying that publicly-condemned behaviour of some companies within the financial services sector was driven by greed and the pursuit of profit.
Commissioner Kenneth Hayne said the commission had to address the question of why companies engaged in such behaviour.
“Too often, the answer seems to be greed – the pursuit of short-term profit at the expense of basic standards of honesty,” he wrote. “How else is charging continuing advice fees to the dead to be explained?”
He added that the commission also had to prevent the behaviour from happening again.
However, rather than recommending new laws, the 1000-page, three volume report says the sector needs better enforcement of the existing laws as well as simplification of those laws.
“Much more often than not, the conduct now condemned was contrary to law. Passing some new law to say, again, ‘Do not do that’, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?” the report says.
The report comes after general insurers came under fire during the Hayne Royal Commission, which finished its examinations last month.
While submissions were made in relation to car insurance, insurers did not face questions regarding the body repair industry, though many repairers say alleged misconduct, connected to home and life insurance, also applied to car insurance.
The commission heard of breaches of the law, misconduct, and insurers failing to live up to community expectations. There is also a lack of regulation in the insurance sector compared to other types of financial services.
Multiple insurers are likely to have engaged in misconduct over claims handling, along with breaching their duty to act in utmost good faith, while the Insurance Council of Australia (ICA) was criticised for failing to act against members that breached the insurance code of practice.
Commissioner Kenneth Hayne has been asked to consider charges against South African-owned insurer Youi, and Suncorp-owned insurer AAI, which issues 37 home and contents insurance products through 13 different brands, including AAMI.
The commission heard Youi could be open to findings of misconduct over its handling of two customers after their homes were damaged by natural disasters, while Suncorp’s claims and dispute handling processes were considered “so bad they amounted to systemic problems”.
The commissioner asked Suncorp Group’s Insurance Chief Executive, Gary Dransfield, how much money Suncorp saves on building costs because of discounts from builders who are awarded lots of work from the company. Dransfield replied that it is likely a builder’s margin of 14-15 per cent is charged to Suncorp, rather than a builder’s margin of 20 per cent that might apply to retail customers.
Counsel assisting said AAI’s internal culture seemed more concerned with growing its business rather than compliance with the industry code of practice.
The Financial Ombudsman Service (FOS) said it had raised repeated concerns with AAI about claims handling and the information provided to customers about their dispute resolution rights.
The FOS expressed concern that these were systemic problems and if not rectified, could amount to serious misconduct under FOS’s terms of reference. Concern was also expressed that AAI might not have adequate processes to implement FOS determinations in a timely way, while the FOS also identified two other areas with systemic problems at Suncorp.
Dransfield also accepted the potential for insurance company-appointed engineers to be biased in favour of the insurer because they are often reliant on those companies for ongoing work.
Swann Insurance came under fire when Counsel Assisting Mark Costello suggested the commission could find the company engaged in misconduct by giving incentives to authorised representatives to sell as many add-on policies as possible with no regard to the suitability of those products. Costello also told the commission that parent company IAG failed to properly oversee Swann. The company no longer sells add-on insurance products.
It is estimated that Swann would have to remediate around 64,000 customers $37.1 million for mis-sold add-on insurance.
Costello suggested it is open to the commissioner to find that Swann undertook no meaningful review of its products. Despite ASIC concerns, Swann failed to see if its products offered any value to customers. It continued to pay car dealers large commissions to sell products without monitoring the sales practices of its representatives, possibly breaching s912 of the Corporations Act.
Counsel Assisting Rowena Orr said the commission is open to find insurance company Allianz engaged in misconduct via misleading statements published on its website. The failure to report misleading and deceptive conduct to ASIC, and to have a compliance system in place, could also amount to misconduct.
Orr said Allianz’s behaviour, which included seeking to manipulate independent reports, fell below community standards, adding that monitoring and supervision remains an issue for the company. According to Orr, Allianz’s culture fails to consider risk and compliance a priority, while the company responds defensively when challenged.
Another insurer, ClearView, admitted to 303,000 criminal breaches of the law through its use of an aggressive cold-call sales force.
Other insurers were also under pressure when Orr suggested CommInsure’s outdated medical definitions may have fallen short of community standards, as did AMP, which continued to charge insurance premiums to people who had died.
Regarding the ICA, Orr told the commission that the council had not applied any sanctions, despite the code governance committee determining there were 33 breaches and around 31,000 incidents of self-reporting since July 2014.
In response, ICA CEO Rob Whelan said the council only applied sanctions when breaches are not remedied, resolved or corrected.
While acknowledging its limitations, Whelan told the commission the ICA believes in self-regulation and that the code should not form part of consumer contracts.