The Federal Court of Australia has dismissed civil penalty proceedings brought by the Australian Securities and Investments Commission (ASIC) against two former executives linked to the now-deregistered insurance provider Freedom Insurance.
In a judgment delivered on Oct. 16, Justice Scott Goodman rejected ASIC’s allegations that former Freedom Insurance director Keith Charles Cohen and former consultant Robert Rafec Oayda were involved in unlawful conflicted remuneration schemes tied to sales incentive programmes.
The case, lodged in 2021 and heard in July 2023, centred on claims that incentive prizes offered to call centre staff breached provisions of the Corporations Act 2001.
ASIC alleged that between November 2017 and October 2018, Freedom Insurance and related entity Insurance Network Services Australia Pty Ltd (INSA) operated three incentive schemes – known as the Vespa Incentive, First Bali Sales Incentive and Second Bali Sales Incentive – which rewarded top-performing sales agents with prizes including a Vespa motorcycle and overseas trips to Bali. According to ASIC, these prizes constituted conflicted remuneration and encouraged sales practices that placed commercial interests ahead of customer outcomes.
However, the court found ASIC had not proven that the incentives met the statutory definition of conflicted remuneration under Division 4 of Part 7.7A of the Act .
Goodman also ruled that ASIC failed to establish that Cohen, who had been a responsible manager under Freedom Insurance’s Australian Financial Services Licence (AFSL), breached his directors’ duties under section 180 of the Corporations Act.
The court noted that Freedom Insurance operated under a “no advice” sales model, relying on scripted telephone sales of the Freedom Protection Plan (FPP), a life insurance product distributed on behalf of Swiss Re.
Evidence from Cohen and other company witnesses demonstrated that product scripts were designed to avoid financial advice obligations, and ASIC did not show that the incentive programmes caused sales agents to provide financial product advice in breach of the law.
Goodman also rejected ASIC’s claims that Cohen had failed to prevent potential breaches or that he was knowingly involved in any contraventions by Freedom Insurance or INSA. The Court dismissed ASIC’s originating process and ordered the parties to confer on costs before Oct. 31.
According to ASIC’s original announcement, the case was the final civil action arising from investigations connected to the Financial Services Royal Commission, which had highlighted misconduct in Freedom Insurance’s sales practices during 2018 hearings.
Do you think the judgment signals a need to revisit conflicted remuneration laws for insurance sales, or does it underline limits in ASIC’s enforcement strategy? Share your thoughts in the comments.
