How Select director ‘turned blind eye’ to rogue sales practices

Select AFSL sales agents undertook a ‘Refer a Friend’ program to boost sales, incentivised by the prospect of cruise and Vespas, which caused a spike in insurance sold in Indigenous communities. 

Last week, the Federal Court imposed a combined $13.5 million penalty on Select AFSL, BlueInc Services, and Insurance Marketing Services for engaging in unconscionable conduct. 

The court also imposed a penalty of $100,000 on the former managing and sole director of Select and BlueInc, Russell Howden, for breaching his directors’ duties and he will be disqualified from managing corporations for five years.

The case concerned the mis-selling of life, funeral, and accidental injury insurance over the phone to consumers, including First Nations consumers from remote communities, where English is not their first language. 

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In the case’s ruling, details have been shared regarding how the firm knowingly operated schemes and incentives that caused the spike in Indigenous communities.

The Refer a Friend program ran between January 2015 and May 2017 and saw sales agents at Select solicit contact details for the friends and family of newly acquired customers. It said Select sales agents also ‘name-dropped’ the customer who had provided their details to them and implied they had endorsed or approved Select’s insurance policies.

“… Those customers did not have the opportunity to decline to participate in the Refer a Friend Program and could not reflect on the implications of providing contact details of friends or family members, were incentivised to provide such details, and the program did not require consent to be sought from the referred persons or afford the newly acquired customers the opportunity to obtain the referred persons’ consent,” the liability judgement said.

The program was described as being “devised and executed unfairly” as Select also failed to adequately monitor the sales agents’ calls or identify that the program was contributing to a sales spikes in postcodes with high proportion of Aboriginal or Torres Strait Islander populations between January and October 2015.

Only one in 10 calls made by sales agents were monitored during the time.

In 2015, Howden was warned about the high number of sales, but said he did not believe there had been any mis-selling and the program was permitted to continue until May 2017. Further incentive programs were also launched by Howden after he received the warning without informing the firm’s compliance officer. 

“He chose not to conduct any investigation, even though he knew of the issue regarding use of the Refer a Friend program by a senior sales agent in relation to certain Indigenous communities. There is no evidence that any other step was taken, not even a general warning to sales agents about the use of the program,” the liability judgement said.

Howden argued that the sales agents went off script, however, the court found the Refer a Friend program was built into the agents’ scripts and they were trained in sales techniques designed to increase their persuasiveness. 

He was also described as a “micromanager” who regularly interacted with sales managers and would regularly check if they were meeting targets.

In the liability judgement, it stated: “Howden was located in the same office, where posters for the incentives and leaderboard screens were also located. Howden presided over what at the very least, would be described as a very competitive, sales-driven culture designed to sell more products by, inter alia, rewarding the top performers. These practices were known and endorsed by senior management, including Howden, and set the culture of the sales environment.”

One of the senior sales agents, Patrick Hoey, received an informal warning from Howden for his sales practices. Hoey is understood to be one of two senior sales agents who made a large proportion of sales, although 46 per cent of sales were made by 51 agents.

“If there were no concerns about the sales being made from the referrals, based on the vulnerability of the communities, it is difficult to understand the basis of the warning,” the liability judgement said.

“In the circumstances, having done nothing in response (except warning Hoey informally) it can properly be said that Howden, at the very least, ‘turned a blind eye to the risks to consumers arising from the use of the Refer a Friend program and sales made to consumers within certain Indigenous communities from late 2015’ until it was raised by St Andrew’s in October 2016.” 

(St Andrews was the issuer of the life insurance, funeral insurance and accidental injury insurance products sold by Select.)

Another reason for the spike was the introduction of incentive schemes. 

The firm operated four incentive schemes over the period: a four-night cruise to the Gold Coast in July 2015, a new Vespa scooter in July 2015, a seven-day holiday to Las Vegas in April 2016, and a seven-day holiday to Hawaii in December 2017. 

The Las Vegas and Hawaii incentives were implemented despite Howden knowing the Refer a Friend program was causing a spike in Indigenous communities. He was also aware the spike was contributed to by an increase in sales at the time of the cruise and Vespa offers. 

The matter has been adjourned until 5 July 2023 for submissions on when the orders, including in respect of the penalties imposed, should be entered.