ClearView never prioritised compliance, did it?
This was the challenge Senior Queen’s Council Assisting, Rowena Orr, put to ClearView Chief Actuary and Risk Officer, Gregory Martin, on the second day of round 6 of the Royal Commission into Banking, Superannuation and the Financial Services Industry.
Orr highlighted a document that said there was a lack of legal and compliance experience, particularly in the direct business, and that ClearView’s quality assurance team only consisted of four people.
“While the group legal and compliance resources do not have deep direct business experience, the language of the script suggests there may also not be expertise in scriptwriting,” Orr said.
This was a document Martin had commissioned that showed ClearView lacked the proper resources to do the job correctly.
Additionally, Orr had questions regarding ClearView’s work in the area of quality assurance.
“Inaccurate quality assurance data has been provided,” she said, reading from a review on ClearView’s risk and compliance team. “This is possibly due to a number of reasons: stretched resources, little attention to detail and manuals, and the nature of the quality assurance processes. The level of detail provided to the direct risk and compliance committee is insufficient to form an accurate view on the state of compliance.”
Bad sales practices
Also raised at the hearing was the question of executive skill gaps, as well as potential gaps regarding regulatory compliance and financial services.
Martin acknowledged that compliance and executive failures meant there were systemic challenges with the compliance program.
Orr noted that harassment was an additional factor in the wearing down or sidestepping of customer concerns to sell them products they may not adequately understand.
Martin acknowledged that there had been challenges regarding the use of language in internal comms at Clearview.
Despite the deliberate attempts to circumvent regulatory barriers—including the deceptive packaging of trips as ‘educational’—Orr said there was no action against ClearView’s Head of Sales, who aimed intentionally to breach the law.
Together with ClearView’s ineffective compliance system, Orr also noted the flawed nature of their quality assurance program, stating that quality assurance was aimed at flagged agents only. Subsequently, those agents who had not been flagged felt immune to compliance procedures and less inclined to follow them.
There was also a division between the sales team and the quality assurance team—a factor with inherent conflict in relation to ClearView’s direct business.
Martin acknowledged this, stating neither team was sufficiently independent.
The role of ASIC
Earlier this year, the Australian Securities and Investments Commission (ASIC) announced that Clearview would have to pay a total of $1.5 million in compensation to 16,000 customers as a result of their life insurance sales practices.
Out of the 32,000 life insurance policies sold between January 2014 and June 2017, 1,166 of these were to customers “…residing in high indigenous populates areas who were unlikely to have English as their first language”.
It was announced then that, in response to the concerns of the conduct regulator, the life insurance arm of Clearview planned to:
refund full premiums, all bank fees and interest to customers with high initial lapse rates;
refund 50 per cent of premiums and interest to customers with high ongoing lapse rates;
offer a sales call review to other eligible consumers and remediate if there was evidence of poor conduct;
engage an independent expert (EY) to provide independent assurance over the consumer remediation program; and
cease selling life insurance directly to consumers (that is, without personal financial advice).
ASIC negotiations to resolve issues surrounding breaches of the Corporations Act included Martin, who confirmed he was part of these negotiations.
ASIC’s concerns focussed on the anti-hawking provisions for consumers under the Protections Act, and the general obligations of AFSL enforced in the Corporations Act.
Orr said ASIC was willing resolve this matter, providing eight stated conditions were agreed upon and adhered to.
These conditions included the engaging of an EY; the implementation of a consumer remediation programme; the prioritisation of resources to a remediation program and the undertaking of such a program in a timely manner; to provide ASIC with the scripting, testing and the correspondence regarding the remediation program; that all communication to consumers about the remediation program was behaviourally-informed and outgoing in terms approved by ASIC; to confirm remediation details as soon as possible; and, if going back to the direct or non-advised channel, to advise ASIC before doing so.
ClearView agreed to these terms and published a media release to this effect. They were also given the opportunity to let ASIC know if there were any factual inaccuracies.