The recent findings of unconscionable conduct in the case of ASIC v Select AFSL Pty Ltd (No 2) 1 relate to particularly egregious conduct, which was first uncovered by the Banking Royal Commission. The judgement serves as a further illustration of the types of conduct the Court will find are unconscionable and provides guidance on how not to run sales incentive campaigns.
The Banking Royal Commission
Ms Kathy Marika, a Yolngu grandmother whose first language is not English, gave evidence to the Royal Commission about being sold two funeral insurance policies over the phone by Select AFSL Pty Ltd ("Select"), trading as Let's Insure, when she already had funeral insurance.2 Agents for Let's Insure called Ms Marika several times over a number of days.
The calls began with the first caller asking her to participate in a 1-minute survey and assuring Ms Marika that they were not trying to sell her a second 'pointless' insurance policy. During the second call, Ms Marika told the caller she was happy with her existing funeral insurance policy. On the third call, Ms Marika was sold the policies to cover herself, her three children and her five grandchildren, with the caller telling her that she could "have two at the same time, and that is what most people tend to do".3 It was on this call also that Ms Marika received the oral Product Disclosure Statement, without being asked for her consent to do so.4 Ms Marika gave evidence that she found the caller difficult to understand, that he spoke "really fast, like a train" and before she could "think about how to answer [his] questions, he would just start speaking again".5 She also found the call confusing and frustrating and felt the caller did not treat her with respect. Ms Marika was called a further time and convinced by the caller to go through her phone to refer family and friends so she could receive Coles Myer vouchers (the 'Refer a Friend' program).6
Within a week, Ms Marika tried to cancel her policies with Let's Insure as she couldn't afford them. Let's Insure responded that they would waive the premiums for the first month and convinced Ms Marika to keep the policies. The Commission had the benefit of the call recordings, which were played in the hearing. Mr Russell Howden, Managing Director of Select, maintained in evidence that the cancellation response was fair. Once Ms Marika engaged legal assistance to assist her to successfully cancel the policy, Let's Insure maintained that it had "at all times acted properly and in accordance with the law".7
At the time of the calls, commissions were payable on the first year's premium for sales and comprised 30% of an agent's remuneration. In addition, Select ran sales incentives offering a Vespa scooter and a cruise as prizes for high volumes of sales.8 These incentives were part of the culture at Select, where other programs had included:
- agents with zero sales were made to wear inflatable doughnuts;
- Million Dollar Club with a $1000 Flight Centre voucher, a trophy and a plaque;
- Top Dog Chair being awarded; and
- Super Sales Days with coffee vouchers, Coles Myer gift cards, prepaid visa cards of up to $100 and an iPad.9
At the time of the calls to Ms Marika, Let's Insure recorded sales spikes in Aboriginal and Torres Strait Islander communities. Commissioner Hayne found that the commission structure and sales incentives campaigns encouraged agents to sell aggressively.10
Following its 2019 ban on the unsolicited telephone sales of life insurance11, ASIC commenced civil penalty proceedings against Select and related companies12 and against Mr Howden personally for:
- engaging in conflicted remuneration contraventions contrary to ss 963E, 963F and 963J of the Corporations Act 2001 ("Corporations Act")
- engaging in false and/or misleading (or misleading or deceptive) representations contrary to ss 12DA and 12DB of the Australian Securities and Investments Commission Act 2001 ("ASIC Act")
- engaging in unconscionable conduct contrary to s 12CB(1) of the ASIC Act
- engaging in undue harassment contrary to s 12DJ(1) of the ASIC Act
- failing to provide financial services efficiently, honestly and fairly and in accordance with the law contrary to ss 912A(1)(a) and (c) of the Corporations Act
- failing to exercise director's duties with care and diligence contrary to s 180(1) of the Corporations Act and exposing the companies to a foreseeable risk of harm13
Fourteen consumer witnesses, including Ms Marika, gave evidence for ASIC.
The company structure
Select held an AFSL and through its trading names, Let's Insure and FlexiSure, sold a range of insurance products. Select sub-contracted sales and retention responsibilities to BlueInc Services Pty Ltd ("BlueInc") and Insurance Marketing Services Pty Ltd ("IMS"), which were agents of Select. Mr Howden, who had over 20 years' experience in the insurance industry in Australia, was the sole director of Select, BlueInc and IMS. BlueInc owned the companies and was owned by Howden Family Holdings Pty Ltd, of which Mr and Mrs Howden are the sole beneficiaries.14
In July 2022, the Federal Court found that Select and related companies engaged in unconscionable conduct when selling life, funeral and accidental injury insurance, and that Director, shareholder beneficiary and Responsible Manager, Mr Howden was personally involved in some of the contraventions15 and breached his duty of care and diligence as a director. The Court also held that Select and BlueInc provided conflicted remuneration to sales agents, namely, a cruise to the Gold Coast, a Vespa scooter and trips to Las Vegas and Hawaii. Further, Select, BlueInc and IMS engaged in coercion and undue harassment in the sales and retention activities, and further failed to act honestly, efficiently and fairly and in accordance with the law in the provision of the Refer a Friend program. ASIC Commissioner Sean Hughes said of the decision:
"In making findings of unconscionable conduct, the Court has emphasised that consumers must have the opportunity to understand and consider the features of the insurance product they've been offered. ASIC will pursue those who take advantage of consumers, wherever they are, and including in remote parts of Australia. This case serves as a reminder to insurers to ensure their distributors act appropriately and put the needs of consumers first." 16
The Courts have held that the question is whether "conduct in connection with the supply of financial services ... objectively answers the description of being against conscience".17 To behave unconscionably can include "dishonesty, predation, exploitation, sharp practice, unfairness of a significant order, a lack of good faith, or the exercise of economic power in a way worthy of criticism", though none of these terms is definitional.18 Unlike common law unconscionability, statutory unconscionability does not require – though does take into account – that "the innocent party laboured under a pre-existing special disadvantage that was taken advantage of by the wrongdoing party".19 'Special disadvantage' means "something that "seriously affects the ability of the innocent party to make a judgement as to his [or her] own best interests"; and, may be inferred from "poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary".20 No one factor is definitional, and it is usually a combination that will be found.21
The Court considered each of the consumer witness's circumstances and found that Select and related companies engaged in statutory unconscionability in its dealings with all 14 wtinesses. The Court found that the agents took advantage of the consumers' vulnerability and/or weaker bargaining position in circumstances where they knew or ought to have known that the consumer was vulnerable and/or in a weaker bargaining position. The Court found that this was evident in the content and tenor of the calls and that the indicators of vulnerability or weaker bargaining position (of which all witnesses had more than one) included:
- the consumer's first language was not English,
- the consumer was aged,
- the consumer was living remotely or regionally,
- the consumer had difficulty understanding parts of what was occurring, and
- the consumer had difficulties with finances.
In its findings of unconscionability, the Court found that agents spoke quickly and rushed calls; they were persistent in circumstances where consumers already had insurance, didn't understand or want insurance, and/or were requesting time to consider the sale or to cancel their policies. Many of the calls took place at a time when the agents were participating in one of the various sales incentive campaigns.
What can we learn from this case which seems to be the worst of the worst?
Tip 1: Develop, implement and monitor compliance with, and the relevance of, your policies and procedures relating to your dealings with consumers experiencing vulnerability or a weaker bargaining position.
Tip 2: Review your remuneration practices to ensure you are not paying conflicted remuneration and avoid sales incentive campaigns that support a culture of making sales at the expense of the consumers' interests, particularly consumers experiencing vulnerability or a weaker bargaining position.
1  FCA 786
2 Interim Report, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Volume 2: Case Studies, Commonwealth of Australia, 2018 ("Interim Report"), p.458
3 Ibid, p.459
5 Ibid, p.460
6 Ibid, pp.458-460
7 Ibid, p.461
8 Ibid, pp.462-3
9 ASIC v Select AFSL Pty Ltd  FCA 786 ("Select AFSL") at -
10 Interim Report, pp.461-3
11 This ban was incorporated into the 2021 anti-hawking amendments to the Corporations Act.
12 Select AFSL Pty Ltd, BlueInc Services Pty Ltd, Insurance Marketing Services Pty Ltd engaged in telephone sales of life and accidental injury insurance issued by St Andrew's Life Insurance Pty Ltd under the brand names 'Let's Insure' and 'FlexiSure'.
13 Select AFSL at -
14 Ibid. at 
15 Including breaching general obligations at ss 912A(1)(a) and (c) of the Corporations Act 2001 (Cth) ("Corporations Act").
16 ASIC, Media Release, ' 22-176MR Court finds Select AFSL and its agents acted unconscionably when selling insurance products: Royal Commission case study', 11 July 2022
17 Select AFSL citing ASIC v Kobelt  HCA 18; (2019) 267 CLR 1 at , at 
18 Select AFSL citing Unique International College Pty Ltd v ACCC  FCAFC 155; (2018) 266 FCR 631, at 
19 Select AFSL citing ACCC v Quantum Housing Group Pty Ltd  FCAFC 40; (2021) 388 ALR 577, at 
20 Select AFSL citing Stubbings v Jams 2 Pty Ltd  HCA 6; (2022) 96 ALJR 271, at 
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