Charmian Holmes
Currently insurers are not permitted to offer financial products for issue or sale to retail clients in the course of or because of an unsolicited meeting at all, or in the course of a telephone call unless they have met certain requirements.
The result is that there is virtually 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, however in ASIC’s Hawking Guide (Regulatory Guide 38) they have adopted the view 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 when a positive, clear and informed request has been made.
There is no reason to believe that this guidance would be abandoned, and in fact, Hayne agreed that the law should work as described by ASIC. The guidance explains when discussing a financial product will be within the scope of a consumer’s request by reference to the consumer’s actual words, previous dealings with the offeror, and what a reasonable person would expect to discuss.
Impact for the general insurance industry
Professional insurance advisers such as 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 solicited because of their previous dealings with clients, the nature of their engagement, and the fact that a reasonable person would expect to discuss a wide range of insurances with their broker.
Where a consumer deals with an insurance agent, it may be more difficult to offer an alternative product unless it was within the scope of the consumer’s initial request or reasonable to expect that that product would be discussed. This might occur where it is clear the insured is enquiring about the wrong kind of product for the risk, for example, the insured is enquiring about personal accident cover in circumstances where it is apparent life insurance or total and permanent disability insurance would provide better outcomes. That said, agents and insurers are already challenged in cross-selling in this way because they cannot tell the client what is best or appropriate for them.
On the other hand, 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.
Examples of hawking
It seems more likely that the restrictions will draw additional 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. Practices which already exist in the industry may now be re-examined to determine if the meeting truly is solicited. Some sales models may need to be adjusted to more clearly demonstrate that the consumer has made a positive, clear and informed request:
- 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 will 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.
- Up-selling insurance – 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 insurances and the tradie consents, this is not hawking.
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 unclear what “other contact” might include. Arguably, it could extend to other forms of contact such as emails and digital messages. However, it appears unlikely this is the intent because such digital forms of contact do not cause the consumer detriment (for example, digital/online sales with opt-ins, chat bots, SMS messages, and emails). Any suggestion that anti-hawking laws should be extended to these more passive forms of contact should be vigorously challenged.
What will the changes be post-Royal Commission?
Realistically, the practical application of the anti-hawking laws are unlikely to substantively change, because the main recommendation is for ASIC’s guidance to now be enshrined as law. The approach is not therefore changing, it will merely carry the full weight of the law.
The biggest changes are:
- Telephone sales will now be dealt with identically to unsolicited meetings; and
- There may be renewed scrutiny of general insurance in add-on contexts. The question of whether the meeting is “solicited” for the purposes of offering the financial product has historically been given cursory consideration, and licensees will discover they need much more rigour in their sales process to obtain “positive, clear and informed” consent.
Strong industry consultation will be necessary to strike the right balance between protecting consumers and allowing a 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, and more passive forms of contact which cannot, by their nature, involve pressure selling, should be excluded, such as online sales.
Leading consulting firm, Finity, have assisted with the preparation of this blog by discussing the issues with us and challenging our views. Whilst we appreciate Finity’s input, The Fold is responsible for this communication and the views expressed are our own.
By Charmian Holmes, Solicitor Director, Brisbane, and Jaime Lumsden Kelly, Solicitor Director, Sydney