ASIC civil action against Freedom Insurance bosses

Sales incentives offered by now liquidated insurer, Freedom Insurance, have come back to haunt two of its senior executives with the Australian Securities and Investments Commission (ASIC) announcing it has initiated civil penalty proceedings.

The regulator announced today it had begun the proceedings alleging the former managing director of Freedom, Keith Cohen and the former quality control manager, Robert Oayda were involved in breaches of conflicted remuneration and other laws.

The Freedom issues were a case study before the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

ASIC alleges that both Cohen and Oayda were involved in decisions that saw sales agents qualify for overseas holidays if they reached certain sales targets and a Vespa scooter if they made the most sales. ASIC is concerned that these incentives influenced the sales agents’ conduct and made driving the sale their focus, rather than customer needs.

ASIC alleges that between November 2017 and October 2018:

Cohen was knowingly concerned in, or party to, breaches of the conflicted remuneration provisions by both Freedom Insurance and Insurance Network Services Australia Pty Ltd (in liquidation) (INSA) involving two separate trips to Bali and a Vespa scooter, and Mr Oayda was also knowingly concerned in, or party to, Freedom Insurance’s breaches;

Cohen and Oayda were knowingly concerned in, or party to, breaches by Freedom Insurance of its licensee obligations arising from its breaches of the conflicted remuneration provisions; and

Cohen breached his director’s duties by exposing Freedom Insurance and INSA to a foreseeable risk of harm in relation to such conflicted remuneration.

Commenting on the litigation, ASIC deputy chair, Sarah Court said, “The impact of incentives when selling financial products has been a longstanding issue for ASIC. We are concerned that incentives may cause sales agents put their own need for sales and reward above the needs of their customers”.

The alleged conduct relates to the marketing and selling by Freedom Insurance of insurance products issued by Swiss Re Life and Health Australia Limited, including final expenses cover (a type of life cover), accidental death cover and accidental injury cover.

ASIC is seeking declarations, civil penalties, injunctions and disqualification orders against Cohen, and declarations and injunctions against Oayda.

The proceedings are to be listed for case management on a date to be determined by the Court.