2.3 What the case study showed

2.3.1Misconduct

In its submissions to the Commission, Freedom suggested that in circumstances where ASIC was reviewing Freedom’s practices,ASIC might be considered the more appropriate body to review and make final determinations regarding the past conduct of Freedom Insurance [than the Commission is]’.[1] As I have previously explained, I am not empowered to and do not makefinal determinations: I am authorised only to consider whether conductmight have amounted to misconduct.[2] I do not consider that ASIC’s current investigation into aspects of Freedom’s practices relieves me of that duty.[3]

Freedom’s actions may have amounted to misconduct in a number of respects.

In respect of Freedom’s sales to vulnerable customers, I consider that by selling insurance to Mr Stewart’s son, in circumstances where the sales agent knew, or ought to have known, that Mr Stewart’s son did not understand what he was agreeing to, Freedom may have engaged in unconscionable conduct within the meaning of sections 12CA or 12CB of the ASIC Act.[4] Freedom accepted that the sales agentknew or ought to have known that Mr Stewart’s son did not understand what he was agreeing to,[5] but said that his inappropriate conductshould not be characterised as conduct of Freedom Insurance itself.[6] In circumstances where the sales agent was acting as a representative of Freedom, within the sales structures put in place by Freedom, I do not accept this submission.[7] Freedom also submitted that this was anisolated incident’ that ‘should not be used to characterise the general conduct of the organisation.[8] Putting to one side the question of whether the incident was isolated, I do not consider that there is any justification for reading sections 12CA or 12CB as only applying to systemic issues.

For similar reasons, I consider that Freedom may have also engaged in unconscionable conduct in respect of the other three instances where insurance was sold to vulnerable consumers that were the subject of Freedom’s recent breach notification to ASIC.[9]

In addition, Freedom acknowledged both in its breach notification to ASIC and in its submissions to the Commission that the conduct of its sales agents in connection with those four vulnerable customers may have constituted a breach of sections 912A(1)(a), 912A(1)(ca) or 912A(1)(f) of the Corporations Act.[10] I have no reason to doubt that that acknowledgment was properly made.

In respect of Freedom’s quality assurance practices, Freedom failed, until July 2018, to appropriately frame its call marking guidelines to ensure that most or all types of serious misconduct, including legislative breaches, constituted aQA fail.[11] I accept that Freedom’s call marking guidelines were only one aspect of its quality assurance and risk management regime.[12] However, in my view, they were a significant aspect of that regime, because they set out the criteria by which the performance of Freedom’s representatives would be assessed. In my view, the defects evident in the guidelines prior to July 2018 suggest that Freedom historically failed to have in place sufficient processes to deter legislative breaches in the sales process. As a result, I consider that Freedom may have failed to take reasonable steps to ensure that its representatives complied with financial services laws for the purposes of section 912A(1)(ca) of the Corporations Act, or to have in place adequate risk management systems, as required by section 912A(1)(h) of the Act.

In respect of Freedom’s remuneration and incentive practices, Freedom acknowledged in its breach notification to ASIC that until May 2018, it may have breached section 963E of the Corporations Act in respect of the variable component of its sales agent remuneration structure.[13] Freedom reiterated that acknowledgment in its submissions to the Commission.[14] I have no reason to doubt the appropriateness of that acknowledgment.

Similarly, Freedom also acknowledged to both ASIC and the Commission that it may have breached section 963 of the Corporations Act in respect of the non-monetary benefits that it provided to its representatives between January and April 2018.[15] In its submissions to the Commission, Freedom accepted that it may therefore have historically failed to have in place adequate arrangements for the management of conflicts of interest that arose between its representatives and its policyholders, in breach of section 912A(1)(aa) of the Corporations Act.[16] Again, I have no reason to doubt the appropriateness of those acknowledgments.

Finally, in respect of compliance with the anti-hawking regime, Freedom acknowledged certain breaches of the anti-hawking provisions in the Corporations Act to both the Commission and ASIC.[17] I consider that the acknowledgment was properly made.

These matters having been reported to ASIC, it is for ASIC to decide what further steps it should take.

2.3.2Conduct falling below community standards and expectations

Freedom’s submissions to the Commission only addressed one of the findings identified by Senior Counsel Assisting as being open on the evidence.[18] That matter related to three instances of conduct that fell below community standards and expectations relating to Freedom’s treatment of vulnerable consumers, which were acknowledged to the Commission, but which were not included in Freedom’s breach notification to ASIC. In its submissions to the Commission, Freedom accepted that those instances were properly characterised as conduct that fell below community standards and expectations.[19]

Freedom did not address the other four matters identified by Senior Counsel Assisting as being open on the evidence. In my view, each of those matters is capable of being characterised as conduct that fell below community standards and expectations:

  • The first related to the 27 instances of retentionand cancellation-related conduct that Freedom previously identified to the Commission as falling below community standards and expectations.[20]
  • The second related to the heavy-handed retention strategies employed by Freedom, which may result in policyholders finding it difficult to cancel policies that they no longer want or need.[21] In my view, the community would not expect that an insurance company would make it so difficult to cancel a policy that was no longer deemed necessary or desirable.
  • The third related to Freedom’s disciplinary procedures, which were inadequate to address problematic conduct by its sales agents. One stark example is Freedom’s conduct towards the sales agent who sold the policy to Mr Stewart’s son: he was encouraged to sell aggressively, even in circumstances where Freedom held serious concerns about his sales practices.[22]
  • The fourth related to Freedom’s failure to appropriately recognise and respond to the harm suffered by Mr Stewart’s son. This was demonstrated in a number of respects, including by Freedom’s failure to call back Mr Stewart when it had promised to do so,[23] Freedom’s failure to ensure that Mr Stewart received the call recordings in a timely manner,[24] and the belittling tone of Freedom’s internal communications about Mr Stewart and his son.[25] Taken together, these matters indicated a lack of regard for the harm suffered by Mr Stewart’s son, and a lack of interest in providing effective or timely redress.

2.3.3Causes of the conduct

In my view, the conduct of Freedom is to be attributed to its culture and governance practices and its remuneration practices. As Mr Orton accepted, Freedom’s remuneration and incentives structure encouraged highly aggressive and inappropriate sales practices.[26] Freedom’s quality assurance and disciplinary processes were insufficient to deter and detect these inappropriate practices. These difficulties were compounded by Freedom’s failure to provide training to its staff about dealing with vulnerable consumers until February 2017.[27] Overall, these matters contributed to a culture in which sales agents were encouraged to sell aggressively, without regard for the needs of consumers (including vulnerable consumers), and with few, if any, constraints on their conduct.


[1]Freedom Insurance Group Ltd, Module 6 Case Study Submission, 2 [9].

[2]Letters Patent, 14 December 2017, (a) (emphasis added).

[3]Cf Letters Patent, 14 December 2017, 3.

[4]Transcript, Craig Orton, 12 September 2018, 5446.

[5]Freedom Insurance Group Ltd, Module 6 Case Study Submission, 3 [16].

[6]Freedom Insurance Group Ltd, Module 6 Case Study Submission, 3 [17].

[7]See also Corporations Act s 917B.

[8]Freedom Insurance Group Ltd, Module 6 Case Study Submission, 3 [18].

[9]Exhibit 6.74, 7 September 2018, Freedom Breach Notice, 34; cf Freedom Insurance Group Ltd, Module 6 Case Study Submission, 4 [19]–[20].

[10]Exhibit 6.74, 7 September 2018, Freedom Breach Notice, 4; Freedom Insurance Group Ltd, Module 6 Case Study Submission, 3 [22].

[11]Freedom Insurance Group Ltd, Module 6 Case Study Submission, 4 [24].

[12]Freedom Insurance Group Ltd, Module 6 Case Study Submission, 45 [25]–[27].

[13]Exhibit 6.74, 7 September 2018, Freedom Breach Notice, 3.

[14]Freedom Insurance Group Ltd, Module 6 Case Study Submission, 5 [28].

[15]Exhibit 6.74, 7 September 2018, Freedom Breach Notice, 2; Freedom Insurance Group Ltd, Module 6 Case Study Submission, 6 [32].

[16]Freedom Insurance Group Ltd, Module 6 Case Study Submission, 6 [32].

[17]Transcript, Craig Orton, 12 September 2018, 5526; Freedom Insurance Group Ltd, Module 6 Case Study Submission, 6 [35].

[18]Freedom Insurance Group Ltd, Module 6 Case Study Submission, 67 [36]–[37].

[19]Freedom Insurance Group Ltd, Module 6 Case Study Submission, 6 [36].

[20]Transcript, Craig Orton, 12 September 2018, 5508.

[21]Transcript, Craig Orton, 12 September 2018, 55223.

[22]Transcript, Craig Orton, 11 September 2018, 54819, see specifically at 5485.

[23]Transcript, Bruce Stewart, 11 September 2018, 5409.

[24]Transcript, Craig Orton, 11 September 2018, 5412–14.

[25]Transcript, Craig Orton, 12 September 2018, 5517.

[26]Transcript, Craig Orton, 11 September 2018, 5466; see also Exhibit 6.74, 7 September 2018, Freedom Breach Notice.

[27]Transcript, Craig Orton, 11 September 2018, 5449.