banking royal commission insurance
Allianz chief risk officer Lori Callahan (Image: AAP/Andy Brownbill)

Allianz chief risk officer Lori Callahan

For years, as evidence of misconduct in the banking sector mounted, the defence of our biggest banks was that each scandal was just the result of a few rotten apples, or human error, or internal processes that had now been overhauled. We’re very sorry, banking executives would say, but there were no systemic issues involved.

This is exactly what NAB boss Andrew Thorburn told a 2016 parliamentary hearing. In 2017, Commonwealth Bank’s insurance arm Comminsure released an allegedly independent report to show there were no systemic issues within it — a report then-CEO Ian Narev waved in the faces of MPs. Even smaller banks claimed there were no systemic issues. The Australian Bankers Association told the Productivity Commission “the ABA does not believe there are widespread systemic issues in the banking system or regulatory framework that hinder competition.” 

The government pushed the same line. “I don’t think it is systemic,” then-treasurer Joe Hockey said about the CBA’s financial planning scandal in 2014. The banks’ media defenders said the same. Nor is it confined to Australia. Wells Fargo’s management dismissed the extraordinary crimes revealed in that institution as non-systemic. They were just the actions of a few rogue employees.

You don’t hear the “it’s not systemic” line much anymore — except for the insurance industry. In the responses to the royal commissions hearings that revealed an array of appalling conduct, the industry is insisting there are no systemic issues.

In its submission rejecting proposed findings of misconduct, Freedom Insurance — they of the boiler room sales and selling a policy to a young intellectually disabled man — explained away the latter case as “the failure of an individual sales agent who conducted himself in an inappropriate manner and the conduct should not be characterised as conduct of Freedom Insurance itself”.

As for AMP, which charged thousands of dead people fees for life insurance, that was under what it now calls the “Previous Process” — “previous” since AMP realised how bloody awful it was going to look at the royal commission. This was a process under which its position “prior to July 2018, in respect of certain corporate superannuation products only, had been to cease the deduction of premiums only on finalisation of the claim”. This Previous Process, by the way, was entirely appropriate, AMP insists. Any problems were “a consequence of process and human error. The report did not raise any issue in respect of AMP’s policy or the Previous Process as a whole.”

Then there’s Allianz, with the misleading website, on which they actually admit that the commission could find against them. But there was also the issue of Allianz leaning on Ernst & Young, the authors of one of its “independent” reports about its regulatory compliance, to make it look better.

While “Allianz accepts (as [Allianz’s chief risk officer Lori Callahan] did in her evidence) that the evidence shows that its representatives took steps to try to convince EY to deliver a report that was more positive to Allianz” … “the Commission should not find those interactions on the part of Allianz to be improper or representative of any broader problem with Allianz’s culture.”

There was another “independent” report, from Deloitte, that Allianz also didn’t like. “Allianz submits that the only aspect of its response that potentially reflects poorly upon its compliance culture as a whole is Ms Callahan’s immediate action to ask that it be retracted. This was a regrettable human error, which Ms Callahan acknowledged.”

Ah, human error again. Funny how these “human errors” always end up benefiting the corporation.

There’s also our old friends at Comminsure, exposed not merely for fiddling definitions to reject claims, but withholding material from the Financial Ombudsman Service. Guess what? While “individuals engaging with FOS in connection with the First Insured’s claim made serious errors of judgment in handling the complaint, those errors should not be taken as an indication of a systemic failing”.

And even when TAL’s witness at the royal commission hearings admitted systemic failings, the company has now gone to great lengths to argue that they weren’t really systemic. 

In his interim report, Kenneth Hayne specifically addresses the banks’ insistence that financial advice issues were not systemic:

Rhetoric of this kind is common… That generally similar conduct occurred in all of the major entities suggests that the conduct cannot be explained as ‘a few bad apples’. That characterisation serves to contain allegations of misconduct and distance the entity from responsibility. It ignores the root causes of conduct, which often lie with the systems, processes and culture cultivated by an entity. It does not contribute to rebuilding public trust in the financial advice industry.

As the insurers’ responses indicate, don’t hold your breath waiting for the industry to acknowledge that the problems run deeper than the occasional bungle or bad apple.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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