Fed Court penalises firms for mis-selling insurance

Yasmine Raso

Senior Journalist, Financial Newswire

5 July 2023

Three firms taken to the Federal Court by the Australian Securities and Investments Commission (ASIC) for “unconscionable conduct and other contraventions of financial services laws” when selling insurance have been slapped with a combined penalty of $13.5 million.

The case involved Select AFSL Pty Ltd (Select), BlueInc Services Pty Ltd (BlueInc) and Insurance Marketing Services Pty Ltd (IMS) mis-selling of life, funeral and accidental injury insurance over the phone, mainly to First Nations customers living in remote communities where English was not their first language.

The former Managing and Sole Director of Select and BlueInc, Russell Howden, was also struck with a $100,000 penalty for failing to administer his directors’ duties and will be disqualified from managing corporations for five years.

The Court also handed down penalties against Select and BlueInc for “conflicted remuneration contraventions” which involved sales representatives provided with a cruise to the Gold Coast, a Vespa scooter and trips to Las Vegas and Hawaii.

“The penalties handed down today should remind companies of the importance of putting the customer first,” ASIC Deputy Chair, Sarah Court, said.

“In some of these cases, the consumers involved did not fully understand the products being sold to them, or even that they had been sold insurance in the first place.

“ASIC considered this to be a clear case of consumers not having the opportunity to understand and consider the features of the insurance product they had been offered, resulting in poor consumer outcomes.

“These unlawful sales incentive programs were a key driver of Select’s mis-selling to consumers. The incentive programs were condoned by the managing director, which is why ASIC pursued penalties for the companies and the director.”

The contraventions come after ASIC introduced a ban on “unsolicited ‘cold call’ telephone sales of direct life insurance and consumer credit sales” in 2019, which was eventually superseded by reforms to the anti-hawking regime in 2021.

Select was also the subject of a case study reviewed during the Financial Services Royal Commission, related to experiences of financial services entities in regional and remote communities.

“Misrepresentations were made. High pressure tactics were applied. Sales tactics were used to overbear the free will of consumers,” Justice Abraham said.

“Having made the sales, retention agents ignored the express wishes of the consumers to cancel policies and acted so as to wear them down. Contraventions of unconscionability, coercion, undue harassment and making false or misleading representations, are, by their very nature objectively serious.

“Further, holding an AFSL brings with it legal obligations which must be taken seriously and carried out responsibly.”