Consumer advocates have accused the Morrison government of failing to fulfil a key recommendation of the banking royal commission after the Coalition proposed a review of financial advice that wouldn’t examine commissions paid to agents who sell junk insurance.
In a submission to Treasury, the Consumer Action Law Centre (Calc) said the draft terms of reference of the review should be scrapped and re-written to explicitly include insurance commissions, which Kenneth Hayne – the retired judge who headed the royal commission – said were difficult to justify.
The royal commission heard evidence that commissions were harming consumers.
Pastor Grant Stewart gave evidence in 2018 that his son, who has Down’s syndrome and difficulty understanding whether things were cheap or expensive, bought funeral, accidental death and accidental injury insurance sold to him over the phone by a company called Freedom Insurance, which then refused to cancel the policies.
The commission heard Freedom’s sales agents were incentivised through commissions and prizes including a “boat party” and a trip to Bali – which the company admitted encouraged aggressive and inappropriate sales. The company no longer sells insurance.
Junk insurance has also been targeted by the Australian Securities and Investments Commission, which in 2020 said it had secured $160m in remediation for consumers who bought useless products.
In Thursday’s submission, Calc said that although the Treasury review’s draft terms of reference claimed to be consistent with Hayne’s recommendations, it could not “be said to be meaningfully implementing these recommendations without considering commissioner Hayne’s commentary on the conflicts between interest and duty in financial services”.
“These findings, and the evidence at the royal commission of atrocious sales behaviour motivated by commissions and incentives, appear to have been forgotten in the drafting of the TOR, which make no reference to these issues.”
Cat Newton, a senior policy officer at Calc, said it seemed like the government had largely forgotten the harm uncovered by the royal commission.
“It’s good that the review is happening – it was slated to happen around 2022 – but what we really need is for this review to be meaningfully examining these issues, and making sure it’s proposing solutions that are going to prevent the harm that we saw at the royal commission, otherwise it’s not doing justice to those issues,” she said.
Conflicted remuneration – commissions and other incentives – in selling financial advice were abolished after the royal commission but Newton said they remained at large in the insurance business.
“We know it motivates appalling sales behaviour, where the emphasis is on making the sale rather than getting people into the product that they want or need and understand,” she said.
“So we think all conflicted remuneration needs to go and that would be really beneficial to people, it would mean that they’re getting into products that they want and that they need and that are useful for them, rather than just being flogged a product based on somebody wanting a trip to Bali or a boat tour.”
