The Federal Court has imposed combined penalties of $13.5 million on Select AFSL Pty Ltd (Select), BlueInc Services Pty Ltd (BlueInc) and Insurance Marketing Services Pty Ltd (IMS) for engaging in unconscionable conduct and other contraventions of financial services laws when selling life, funeral and accidental injury insurance.

The Court also imposed a penalty of $100,000 on the former managing and sole director of Select and BlueInc, Mr Russell Howden, for breaching his directors’ duties, and he will be disqualified from managing corporations for five years.

ASIC’s case concerned the mis-selling of insurance over the phone to consumers, including First Nations consumers from remote communities. English was not the first language of many of these consumers.

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

The Court also penalised Select and BlueInc for conflicted remuneration contraventions, which included sales agents being given a cruise to the Gold Coast, a Vespa scooter and trips to Las Vegas and Hawaii.

‘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,’ concluded Ms Court.

In her Honour’s judgment, Justice Abraham observed that ‘Misrepresentations were made. High pressure tactics were applied. Sales tactics were used to overbear the free will of Consumers. 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.’

Select was the subject of a case study considered by the Financial Services Royal Commission (Experiences with financial services entities in regional and remote communities).

The matter has been adjourned until 5 July 2023 for submissions on when the Orders, including in respect of the penalties imposed, should be entered.

Background

The Court found multiple contraventions by Select, BlueInc and IMS, as well as contraventions by Mr Howden, in July 2022 (22-176MR).

Select sold life insurance, funeral insurance and accidental injury insurance issued by St Andrew’s Life Insurance under the brand names ‘Let’s Insure’ and ‘FlexiSure’.

On 30 August 2018, ASIC released REP 587 The sale of direct life insurance, which found that some firms engaged in sales conduct that created risks for consumers buying products they did not want, could not afford or did not meet their needs. It made recommendations to improve sales practices and product design.

In 2019, ASIC announced a ban on the unsolicited ‘cold call’ telephone sales of direct life insurance and consumer credit insurance to address poor sales practices that led to consumer harm. This ban was superseded by reforms to the anti-hawking regime, which took effect on 5 October 2021.

In April 2019, after Select’s conduct occurred, ASIC welcomed the passage of key financial services reforms, including a design and distribution obligations regime for financial services firms and a product intervention power for ASIC (19-079MR).

ASIC’s Moneysmart website has information for consumers about buying life insurance, including how life insurance works, a life insurance claims comparison tool, and a life insurance calculator that help consumers work out whether they need life cover and how much cover they might need.

Editor's note:

On 1 August 2023, Goodman J heard a stay application made by Mr Howden. His Honour has reserved his decision.

Editor's note 2:

On 4 August 2023, Goodman J dismissed Mr Howden’s stay application.

The court found that there was insufficient evidence to stay the disqualification, pecuniary penalty or costs orders made against Mr Howden by her Honour Justice Abraham on 5 July 2023.

Download the judgment (PDF 270 KB).

Editor's note 3:

On 24 July 2023, Mr Michael Jones, Jones & Partners was appointed as Administrator of Select AFSL Pty Ltd (administrator appointed) and Liquidator of BlueInc Services Pty Ltd (In liquidation).