In brief - in February 2019, the Financial Services Royal Commission (FS Royal Commission or FSRC) recommended that the hawking of insurance and superannuation products should be prohibited

Recommendation 4.1 provides:

Consistently with Recommendation 3.4, which prohibits the hawking of superannuation products, hawking of insurance products should be prohibited.

The FSRC Final Report proposes the prohibition of the unsolicited offer or sale of insurance products, except to those who are not retail clients and except for offers made under an eligible employee share scheme

Comminsure charged with breaching anti-hawking law

On 4 October 2019, ASIC charged the Colonial Mutual Life Insurance Society Ltd, trading as CommInsure, with 87 counts of offering to sell insurance products in the course of non-compliant unsolicited telephone calls.

ASIC alleges that between October and December 2014:

  • CommInsure through its agent, telemarketing firm Aegon Insights Australia, unlawfully sold the life insurance policies known as Simple Life over the phone
  • CommInsure provided customer contact details to Aegon from CBA's existing customer database
  • the calls were unsolicited
  • CommInsure didn't comply with all of the hawking exceptions in section 992A(3) of the Corporations Act.

What is hawking?

The hawking prohibitions aim to prevent pressure selling of financial products to retail clients such as 'badgering' and 'boiler room' practices.

Under the Corporations Act, a person ('offeror') must not offer financial products for issue or sale to retail clients in the course of, or because of, an 'unsolicited' meeting or telephone call unless the offeror complies with the exemption procedures set out in section 992A(3) described below.

An offer includes inviting an application for their issue or sale. 

An offeror includes issuers and sellers of financial products, as well as their agents and representatives.

Broadly, the hawking prohibitions may apply to superannuation, life and general insurance products in a retail context (the law assumes that sophisticated financial services institutions and investors do not need the anti-hawking protections in the regime).

ASIC Regulatory Guide RG 38 indicates that ASIC considers a meeting or telephone call to be 'unsolicited' unless it takes place in response to a positive, clear and informed request from a consumer.

That is, the hawking prohibitions will be breached if:

  • the offeror makes an offer to issue or sell a financial product (which includes inviting an application for their issue or sale)
  • the offer is made in the course of (during), or because of, a meeting with or telephone call to a client or potential client (consumer); and
  • the meeting or telephone call is unsolicited.

ASIC is of the view that "when an insurance product is bought through unsolicited contact, there is limited information and time available, and the consumer is unlikely to be able to compare products and adequately assess whether the insurance being offered meets their needs".

As a consequence, ASIC intends to ban unsolicited telephone sales of life insurance (including funeral insurance) and CCI by insurers and Australian financial services (AFS) licensees who sell such insurance when only general advice or no advice is given at the point of sale. This means the prohibition on hawking in s992A(3) would apply 'stand-alone' (with no exemptions) to these sales - refer ASIC Consultation Paper 317 issued 18 July 2019. 

It is anticipated that legislation will shortly follow to clarify the definition of 'unsolicited'. 

However, current anti-hawking laws do not apply to unsolicited emails and digital offers and it is unclear whether any proposed legislation may have the potential to capture sales in a digital environment. Care should also be taken in this area not to breach the anti-spam legislation.

Exemptions for unsolicited telephone calls 

An unsolicited telephone call is exempt if the offeror follows the procedure set out in section 992A(3), that is, if all of the following requirements are satisfied:

  • the offeror calls the consumer only during the hours prescribed by the regulations
  • the consumer is not listed on the “No Contact / No Call” register (maintained by the offeror)
  • the consumer is provided with an opportunity to be listed on the “No Contact / No Call” register and to select the time and frequency of any future contacts
  • the consumer is given a PDS before becoming bound to acquire the financial product
  • the consumer is clearly informed of the importance of using the information in the PDS when deciding whether to acquire the financial product; and
  • the consumer is given the name and contact details of the product issuer, an indication of the nature of the information contained in the PDS relating to the financial product and the option of electing to have any information in the PDS read out to them.

Insurers and Financial Services Providers should check their sales process

ASIC Consultation Paper CP 317 provides insight into the rationale behind ASIC's view that selling products as complex as life insurance or CCI through unsolicited contact, with only general advice or no advice being given, is not conducive to consumers making informed decisions. 

This view is reinforced in the FSRC Final Report which identified that in a sale occurring through unsolicited contact, a potential acquirer:

  • has little or no notice that an offer was likely to be made
  • is unlikely to have considered seriously whether they needed the product that was being offered
  • is unlikely to be armed with the information that they needed to allow them to assess critically the features of the (usually complex) product being offered.
  • without this information, the potential acquirer will not know what questions they need to ask to test the truth of what was being said or to request the details necessary to assess the suitability of the product for their circumstances.

In the case of life insurance, ASIC is of the view that it is a complex financial product and is designed to be held for the longer term, and therefore it is important for consumers to assess their need for the product, its suitability and affordability over time. 

Solicited sales 

As a guide to the criteria which ASIC may apply in assessing the sales process for direct buying of life insurance and consumer credit insurance by a consumer in a solicited situation, ASIC identifies that:

For life insurance sales:

A consumer should be in a position to make their own decision about whether the product meets their needs including a decision about each of the following:

  • the type of cover (such as standalone term life insurance or income protection, or a bundled product that provides multiple cover types such as term life, trauma and TPD)
  • the level of cover
  • the premium structure (stepped or level)
  • underwritten or guaranteed acceptance cover 
  • whether the exclusions applied to the product are suitable for their circumstances. 

For CCI sales:

 A consumer should be in a position to make their own decision about whether the product meets their needs including a decision about each of the following:

  • different features, limits and exclusions
  • whether they require the cover
  • if the cover offers them value 
  • whether product conditions and exclusions would prevent them from successfully claiming. 

In both cases, the framing of the criteria by ASIC operates to encourage a high standard of disclosure and conduct by vendors.

"Fries with that" offers not permitted

In addition, the FSRC Final Report identifies that a solicited meeting, or telephone call, to discuss one type of financial product may have the potential to give rise to unsolicited sales taking place during that meeting. The report emphasises that a solicited meeting must not be used for the unsolicited offering of other types of financial products. 

Therefore, sales situations which involve add-on insurance, up-selling or cross-selling need to be carefully assessed for compliance. Up-selling of a product that is the subject of the call may be permissible, but the offeror must take care not to badger or otherwise breach the umbrella uniform consumer protection laws (eg sections 921A, 1014H and s12D of the ASIC Act).

In that regard, by way of example, the report takes the view that common forms of banking products, like transaction accounts and credit card accounts should be treated as together forming the one kind of product. But each superannuation product and each insurance product is, and should be treated as, a distinct product type.

Recommendation

In light of the findings of the Financial Services Royal Commission and recent increased enforcement activity by ASIC in relation to direct sales of insurance, it is recommended that issuers and sellers of financial products, particularly complex insurance and superannuation, review their sales processes as well as their distribution and sales networks to assess potential regulatory risk and compliance with the financial services regulatory regime.  

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2019.

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