How Banking Bad exposed CommInsure conduct

Today's announcement by the regulator that it will charge the Commonwealth Bank's insurance unit, CommInsure, for breaching anti-hawking laws stems from Adele Ferguson's damning expose on misconduct in the financial services industry.

On Friday the Australian Securities & Investments Commission charged CommInsure with 87 counts of unlawfully selling life insurance policies over the phone - the first criminal case to be launched by the watchdog following the Hayne royal commission.

Ferguson, an investigative journalist with the Sydney Morning Herald, The Age and the Australian Financial Review and a key speaker at next month’s Morningstar Individual Investor Conference, laid bare the misconduct in the financial services industry in a 2014 Four Corners report and subsequent book, Banking Bad.

Journalist Adele Ferguson, whose reporting on misconduct in the banking industry spurred a royal commission. Picture: Fairfax/Simon Schluter

Perhaps the most harrowing moment in Banking Bad, which prompted the royal commission, is the pitiful sight of a permanently disabled man trying to make an insurance claim.

Eight months after the man’s diagnosis, and exasperated by the delays, one of his doctors writes to CommInsure with a simple plea: my patient’s condition is rapidly deteriorating, he tells them, and he might not survive the next few months.

The doctor finally receives a response to the claim lodged by his patient, who by now is unable to move his hands or legs.

“We are unable to do this calculation at present,” the insurer replies. “We would first need to receive and assess the TPD (total permanent disability) claim and ensure he meets the criteria to receive TPD before we can look at a possible calculation.”

A lawyer is hired, accusing the insurer of “malicious” behaviour, and the case drags on for another four months, by which stage the man is bed bound, unable to swallow, speak or move his head. In the end, the bank finally comes good on its payout but only after its former customer has died.

Ferguson still chokes when she reads the catalogue of accounts she uncovered in which banks and insurers put profit before people.

Take the case of Noel Stevens. He also “died fighting the bank” over a life insurance policy the bank recommended. And Ferguson is not speaking metaphorically here.

Whereas CommInsure in the previous case tweaked its policies and medical definitions to limit its chances of incurring payouts, this time the Commonwealth Bank trawled through Stevens’ receipts to imply he had a drinking problem. This enabled them to refuse his payout.

Thanks to the unfailing efforts of his daughter, Stevens eventually won his life insurance claim, but died a few days later. As if that wasn’t enough, Stevens’ daughter, while preparing to bury her father, learned the bank had lodged an appeal. Again, she fought, and again she won.

Political resistance to bank probe

Banking Bad came about following Ferguson’s report on the ABC’s Four Corners program, which aired on 5 May 2014. More than a million people tuned in, including red-faced politicians from both sides of the house.

Some politicians had called for a royal commission, others, most notably Scott Morrison, had resisted, echoing the banks themselves, who said such a probe risked jeopardising a pillar of the Australian economy.  

Eventually the Turnbull government called for the inquiry, prompted by the banks themselves, who reasoned that they’d get a better hearing under an inquiry head selected by the Coalition.

Scott Morrison repeatedly resisted calls for a royal commission into the financial services industry.

The catalyst for Ferguson’s investigation was then Nationals senator John “Wacka” Williams. He had himself been duped into a risky loan and seen countless other business owners and farmers forced into foreclosure despite never missing loan repayments.

Williams put Ferguson in touch with Jeff Morris, an ex-Commonwealth Bank employee, who had a thousand pages of damning evidence of wrongdoing at his former employer.

The result is an illuminating – and troubling – insight into the forgery, fraud and managerial cover-ups within Australia’s banking system that culminated in the year-long royal commission, led by former High Court judge Kenneth Hayne.

Underpinning the bad behaviour was the cosiness between banks and the watchdogs charged with policing them, Ferguson writes.

“CBA’s malpractice became a symbol of a toxic banking culture built on greed, targets and bonuses and, where profits were put before people, and corporate regulators sat silent.”

How did it get to this?

Whereas the Four Corners report was a forensic look at several recent cases of misconduct, Banking Bad the book outlines the root causes.

The turning point, Ferguson notes, was 1983 when the Hawke/Keating Labor government sought to ignite the economy by embarking on a Reaganite plan to deregulate the banking industry.  

Before 1983, banking was a staid affair. Your bank manager was a sombre figure who was not afraid to refuse your request for a loan. Then it all changed.

Deregulation ushered in the entry of foreign banks thereby increasing competition, which, in turn, led to easy credit, higher rates and higher levels of debt.

“After deregulation, banks were allowed to set their own interest rates and savings banks were given more flexibility to invest in higher-risk assets,” Ferguson writes.

And with that came pushy sales techniques where bank staff were under pressure to flog more and more interest-bearing products instead of merely helping to arrange affordable loans.

Lessons learned?

Fast forward to 2019 and the sordid tales emerging from the royal commission. Ferguson takes us inside the chamber where we hear the “audible gasps” as the audience learns – not for the first time – of an adviser charging a client who they know has died.

On the day Kenneth Hayne's final report was released investors added more than $19bn to the combined values of the big four banks, AMP and IOOF.

Then there are the accounts of people being charged fees for no services, indigenous and disabled people being pushed into unnecessary insurance policies, customers being signed up to high-risk instruments they neither wanted nor knew about.

The industry has since sought to make amends for its misdeeds. The big four banks and AMP have now cracked $10 billion in total misconduct-related costs, according to Shaw and Partners banking analyst Brett Le Mesurier. And while a few heads have rolled no one has gone to jail.

Ken Henry, for instance, who was singled out by Hayne for his perceived arrogance at the commission, is still chairman at NAB.

As for the banks themselves, perhaps, as Ferguson notes, the evolution of their share price on the day of Hayne’s final report is the best indicator of the impact of the commission.

“Investors added more than $19 billion to the combined values of the big four banks, AMP and IOOF – the biggest one-day gain in years for these financial giants.”

The Morningstar Individual Investor Conference is on 17 October at the Wesley Conference Centre in Sydney. Buy tickets here.

Banking Bad: Whistleblowers. Corporate cover-ups. One journalist's fight for the truth by Adele Ferguson, HarperCollins, 416 pages