Tweak or turmoil with cross-selling and hawking
The current anti-hawking law
An insurer is not permitted to offer a financial product for issue or sale to a retail client:
- in the course of an unsolicited meeting or
- in the course of a telephone call unless they have met certain requirements.
As far as we know there is little or no cold-calling in General Insurance because of the onerous compliance requirements under the current anti-hawking laws.
What does unsolicited mean?
The term ‘unsolicited’ is not defined in legislation. In ASIC’s Hawking Guide (RG 38) they state that a meeting or telephone call is unsolicited unless it takes place in response to a positive, clear and informed request from a consumer. Hayne has recommended that this definition be legislated.
The Hawking Guide also provides detailed guidance on what constitutes a positive, clear and informed request by reference to the consumer’s actual words, previous dealings with the offeror, and what a reasonable person would expect to discuss.
Hayne agreed that the law should work as described by ASIC.
Impact for the General Insurance industry
Insurance brokers are unlikely to be significantly affected by changes to anti-hawking laws. Most offers of insurance that they make are solicited or would be regarded as solicited under the ASIC guidance.
What about cross-selling of products? If you arrange car insurance on the phone, can an insurer ask about your home insurance? Can a travel agent offer you travel insurance?
This is where we see the anti-hawking changes could create turmoil. Taking the anti-hawking definition and the recommendation at face value, many current practices would become illegal. At least some of those practices are of no obvious detriment to consumers. It is necessary to evaluate whether the various cross-selling situations are indeed a detrimental hard-sell of unwanted products or are beneficial to consumers in terms of awareness and convenience.
While the answer will be different for various consumers a good balance needs to be found to properly regulate the system. To use the travel example, there could be significant benefits for consumers, especially the less financially sophisticated, in reducing the risk of taking an overseas trip without thinking about travel insurance.
Overlap with concerns about add-on insurance products
The concerns with hawking are focussed on consumers at risk of being signed up for products they do not need, or cannot afford or that are poor value. Some of the add-on General Insurance products may fall into this category, and the Royal Commission has made a number of recommendations to deal with this situation – including deferred sales, commission limits and product design and distribution obligations.
Is the extension of anti-hawking needed to deal with these circumstances as well as all the other provisions?
We think the Product Design and Distribution Obligations along with ASIC’s Product Intervention Powers may provide a far superior solution for these concerns rather than using anti-hawking laws.
Digital and email offers
Current anti-hawking laws do not apply to unsolicited emails and digital offers. Hayne’s recommendation refers to “meetings, telephone calls and other contact” and it is not clear what “other contact” might include. Looking at the reasons that Hayne is uncomfortable about hawking (pressure sales, no time to think) it seems fair to conclude that these digital forms of contact do not cause the consumer detriment and should not be regarded as hawking. We think it would be a mistake if anti-hawking laws were extended to these more passive forms of contact.
Examples of hawking
It is helpful to look at some examples to think about how anti-hawking provisions might apply to various practices that are common at present. The restrictions will draw particular scrutiny to sales situations where a consumer is offered one type of financial product in the course of a meeting or call to discuss something else.
Cross-selling insurance on referral
An insurer offers consumer credit insurance to homebuyers. The insurer contacts those consumers through referrals from a third party mortgage broker. The consumer is made aware by their mortgage broker that they will be contacted, however the contact is initiated by the insurer. This would be hawking without positive, clear and informed consent from the consumer.
Selling insurance as an add-on to other services
A vet offers pet insurance to pet owners who come in for a consultation regarding their pet. When the appointment is made, the vet does not make the pet owner aware that they will be offered pet insurance or that they will discuss pet insurance to cover future fees. This will be hawking without positive, clear and informed consent from the pet owner.
A tradie applies online for motor vehicle insurance for a ute and is contacted by the insurer’s call centre to complete their transaction. In the course of the call, the insurer offers the additional option of extending the policy for a privately owned vehicle. This is likely to be hawking without positive, clear and informed consent from the tradie. If the insurer asks if it can assist with private motor insurance and the tradie consents, this is probably not hawking.
Home and contents insurance
An enquiry to an insurer or underwriting agency about building insurance which moves into a discussion about contents insurance is unlikely to breach anti-hawking laws because these two products are closely related - and arguably, one and the same in the consumer’s mind.
All of the examples of unsatisfactory sales conduct that should be restricted by law were from life insurance and funeral cover. One could argue that the current law is adequate and should have been enforced, rather than needing new laws.
Most General Insurance products are not prone to mis-selling or overselling. The vast majority protect a physical asset or legal liability and only one insurance policy is needed for each asset or legal exposure.
Careful consultation will be necessary to strike the right balance between protecting consumers and allowing the convenient and helpful offer of insurance products to consumers. The sales method and the capacity in which someone acts (whether as adviser or seller) are important considerations which should not be overlooked during the consultation process for the new laws. More passive forms of contact which cannot, by their nature, involve pressure selling such as online sales should be permitted.
The ‘turmoil’ scenario, which we hope can be avoided, is to extend the scope and definition of the ‘unsolicited’ offers that are prohibited and thus impact on many benign cross-selling situations.
The ‘tweak’ scenario can be implemented by identifying the unacceptable practices and prohibiting only those practices. Using Product Design and Distribution Obligations as the principal way of dealing with mis-selling and poor value products seems to be a good option. The GI Code of Practice can respond to more specific sales and conduct issues, which then give AFCA visibility of problems arising in practice and the authority for ASIC to intervene.
To us these seem like better alternatives than to implement through ASIC Guidance which is necessarily of a generalised nature.
The Fold Legal, subject matter experts in insurance and financial services, helped Finity by discussing the issues with us and challenging our views. We greatly appreciate the input from The Fold, but Finity is fully responsible for this communication which is not legal advice.
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