20 January 2017 Mr Christian Mikula Senior Specialist Deposit Takers

IAG.502.018.4705 •1a

20 January 2017

Mr Christian Mikula Senior Specialist Deposit Takers, Credit & Insurers Australian Securities and Investments Commission Level 5, 100 Market Street Sydney NSW 2000

Dear Mr Mikula,

ASIC REVIEW OF ADD-ON INSURANCE PRODUCTS

We refer to your letter of 21 November 2016 (ASIC's November letter). We note that the purpose of ASIC's November letter is to set out ASIC's views on what it considers should be the appropriate nature and scope of remediation by Swann.

Our responses to the issues raised in ASIC's November letter are set out below. The additional information requested is attached as Annexure A.

1. Authorised Representatives (AR)

Swann and IAG regard any circumstance where an AR has engaged in unfair sales conduct, including in relation to its add-on insurance products, as totally unacceptable and will continue to fully investigate and address any such cases in terms of both consumer remediation and consequences for ARs involved. Swann acknowledges and accepts the need for an appropriate remediation program where mis-selling has been shown to have occurred, however it remains unclear to Swann what remediation ASIC would consider appropriate, and Swann welcomes the opportunity to discuss this further with ASIC.

Below are our responses in relation to each of the ARs identified by ASIC.

was a finance broker that was a Corporate Authorised Representative (CAR) of Swann. The effective date of the authorisation with Swann was 4 November 2009 and the authorisation was terminated on 11 July 2013.

The following Swann products were sold b • Gap; • Loan Protection Insurance; • Business Use Loan Protection Insurance; • Tyre & Rim ; • Motor Cycle Comprehensive; and • Motor Vehicle Comprehensive.

Level 26, 388 George Street, Sydney NSW 2000 Insurance Australia Group Limited ABN 60 090 739 923 IAG.502.018.4706

i) AS/C's comments in relation to 'guarantor swaps' As the 'guarantor swap' issue relates to the application to Australia and New Zealand Banking Group Limited (ANZ) for the credit contract to which Swann was not a party, Swann is unable to comment on this aspect. Swann is of course willing to discuss this with ASIC and answer any questions directed to Swann to assist ASIC in its investigation.

ii) AS/C's concerns relating to quotes and loan approval

~3 of ASIC's November letter, quote numbers & ~re raised as examples of where ASIC considers- staff engaged in unfair practices motivated by the need to ~ application was approved.

In both instances, quotes were only generated and the quotes were not converted to new business policies and were not identified or activated as current policies on Swann's systems. The purpose of a quote being generated is to provide consumers with an estimate of premium costs as part of any decision making before a consumer decides whether to purchase a policy. A consumer may or may not accept a quote based on their consideration of the estimated premium and other factors addressed in a quote (for example, level of cover).

Swann is unable to comment on ANZ's requirements in respect of its loan applications, or the practices or the motivations of ANZ's agents when submitting loan applications to ANZ, save that it appears that at no time did the loan application process require documented confirmation that a policy had been issued to a consumer.

iii) AS/C's concerns relating to sales practices

The Swann sales process for ARs is set out in Chapter 12 of the Swann General Advice Training manual (a copy of which is attached as Annexure B). The sales process does not include a defined sales script or requirement that the pricing of all possible options of a product to be disclosed to a consumer. As ASIC is aware, there is no current legal requirement for all options to be disclosed to a consumer and Swann is concerned that providing all options to a consumer may in fact cause confusion.

Swann does not agree that ASIC's inferences are supported by the data previously provided, however Swann does acknowledge that in a small percentage of cases involving -as identified by Swann in its letter to ASIC of 12 Septemb~ consumers may have been provided higher value policies than were needed by that consumer. As previously advised, Swann has identified and proposed remediation in relation to such policies.

In addition, Swann is currently investigating new underwriting criteria on its front-end sales system which would restrict the allocation of options for cover based on purchase and finance arrangements to ensure that each consumer is offered an appropriate level of cover.

Page 2 of 9

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In relation to the 694 policies referred to on page 4 of ASIC's November letter, Swann does not consider that an absence of claims under these policies necessarily supports a conclusion that the policies were mis-sold, however if such policies were mis-sold Swann accepts an obligation to remediate affected customers.

Swann is considering the most efficient means of identifying consumers who may have been mis-sold an add-on insurance product and the most effective means of communicating with these customers. Swann has previously sought to engage with ASIC to seek ASIC's views on what measures ASIC would consider appropriate, and we again invite a discussion of such measures.

- s a finance broker that was authorised as a CAR of Swann on 27 July 2016, and the authorisation remains current. Prior to this eriod and relevant to the articular matters raised in AS IC's letter), , trading under the name---

••••••••••2016. was a CAR of Swann from 1 J u l~

The following Swann products were sold by••I • Gap; • Loan Protection Insurance; • Business Use Loan Protection Insurance; • Tyre & Rim; • Motor Cycle Comprehensive; and • Motor Vehicle Comprehensive.

i) Address misrepresentation

ASIC has raised two examples of where ASIC considers - staff engaged in false disclosure, motivated by the need to ensure a loan was approved. It is not clear from the inform ation available to Swann whether the consumer failed to provide the correct address or whether the AR was responsible for the false disclosure.

Further, and as noted above, Swann is not privy to the loan application or ANZ's requirements in respect of a loan application. Nor is Swann or its representatives authorised to commit ANZ to the granting of a loan or responsible for the monitoring or oversight oWZ's lending practices.

In the event of a false disclosure of a consumer's address or postcode for an insurance risk, Swann would not reject a claim, but would adjust the premium in accordance with its rights under the Insurance Contracts Act 1984 (Cth) if the premium charged had been incorrect.

Page 3 of9 IAG.502.018.4708

In the event of a valid claim under policy number , there would have been a premium refund due to the consumer based on the correct address/postcode disclosure. Had a valid claim been made under policy number- there would have been no premium adjustment required based on the correct address/postcode disclosure.

ii) AS/C's concerns relating to- sales practices

Swann is not aware of the specific practices of ~ nd • Swann can confirm that nd • were provraecrwrrFi""elevant training and education as detailed in item 1(a)(iii) above.

If the sales practices of and • in relation to the sale of Swann products were as detailed by ASIC, such practices are inconsistent with Swann's sales process for ARs as set out in the Swann General Advice Training manual (a copy of which is attached as Annexure B). Swann accepts that the practices referred to on page 5 in numbered paragraphs (a) - (e) may lead to unfair outcomes for some customers.

As previously advised, Swann is willing to remediate consumers where it is shown that any mis-selling of an insurance product in breach of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) has occurred, including in circumstances identified in sub-clauses (a) (f) of the letter from Ben Bessel! on 26 September 2016. In order for Swann to investigate these circumstances (as they relate to - and . ). Swann requests that ASIC provide any further information 1t can share in relation to the concerns set out on pages 4 and 5 of ASIC's November letter.

iii) Remote locations

Swann has previously provided data to ASIC with respect to ASIC's concerns in relation to consumers situated in remote locations. Swann does not consider that the data supports that there is a greater risk of mis selling in remote locations. Swann does not agree with ASIC's assertions that Swann's supervision and monitoring was inadequate in these areas and Swann would like to discuss with ASIC any further information it has in relation to such concerns, including the steps ASIC believes Swann ought to have taken and failed to take to meet its obligations.

Please see the further comments below in section 1 d) in relation to Swann's education and training of ARs.

- is a used car dealership trading as a CAR of Swann. The effective date of the authorisation with Swann was 1 November 201 1 and the contract was terminated on 20 October 2015.

The following Swann products were sold by - • Gap; • Walkaway I Protection Plus Insurance; • Tyre & Rim; • Motor Cycle Comprehensive; and • Motor Vehicle Comprehensive.

Page4 of 9 IAG.502.018.4709

i) AS/C's concerns relating to-sales practices

ASIC's concerns~ involve a single transaction for a consumer, being ~ Swann acknowledges the seriousness of the allegations and will investigate sales by- .

In relation to ASIC's comments concerning fraudulent conduct, Swann considers that if the conduct was fraudulent, it was fraud committed against Swann as well as the consumer. Fraud of this type is outside the authority of an AR and, given the fraudulent intent, is often impossible to detect. On this basis, Swann does not consider such conduct occurring necessarily indicates an inadequacy in supervision and monitoring. However, Swann will review its current processes to determine whether any additional measures can be put into place to improve detection of such conduct.

Swann has previously proposed remediation in relation to Gap policies and would welcome ASIC's comments and further engagement on such measures.

d) Training and education of ARs

Swann has provided all ARs with appropriate education and training in relation to the financial product advice provided about its financial products.

In accordance with the information previously provided to ASIC, Swann's ARs are authorised to provide general financial product advice or factual information only and the training required of its ARs is compliant with ASIC Regulatory Guide 146. The training that is mandatory for completion prior to authority being provided to an AR dealer is:

• Swann General Advice Training; • Protecting Customer Information (PCI); • IAG Privacy Awareness (Externals); • General Insurance Code of Practice; and • Product modules relevant to the AR agreement of products being sold.

Product training is completed before access to the front end sales system is granted. Furthermore, product refresher training is overseen and delivered by the relevant Swann Account Manager.

ARs are not permitted to progress through a transaction on Swann's front end sales system unless they provide confirmation that certain compliance requirements have been followed.

Swann continues to reinforce and enhance training with a view to improving sales practices and processes in relation to the distribution of its products. Swann's ARs are not permitted to take into account a consumer's personal needs, objectives or financial circumstances as they are not authorised to provide personal advice.

Before an AR is given access to Swann's system, online compliance training is issued (see training information as outlined above). Product training is initially completed online in conjunction with compliance training. Swann Account Managers also provide ongoing face to face product training to ARs. Swann is also reviewing all active users under its remaining portfolio to ensure that re certification of product training is actioned where required.

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Audit of ARs

To facilitate compliance with its regulatory obligations, Swann conducts regu lar AR reviews. These are delivered electronically and involve the completion of Swann's Electronic Compliance Questionnaire (ECQ).

These reviews are carried out on a bi annual basis and are generally based on a sample set in each State (approximately 10%) and are a standard set of questions covering regulatory requirements, identified breaches and compliance with Corporations Act 2001 (Cth), General Insurance Code of Practice, PCl and similar applicable regulatory requirements.

ECQ's are issued to establish the level of knowledge across compliance obligations and are intended to satisfy the following aims:

to promote a culture of compliance with legal obligations and Swann policies; • to educate CARs and sub-authorised representatives about those obligations and policies; • to identify any non-compliance and respond to that non-compliance in a timely and appropriate manner; and • to identify any requirements for supplementary training as appropriate.

Swann staff review responses and any non-compliance is discussed with the relevant AR and advice is provided to the Swann Account Manager to assist in reinforcing the necessary training. Any non-compliance is also reported in Swann's internal Incident Reporting System for ongoing management.

Mon;toring Complaints by Customers

ln addition to the monitoring of complaints through Swann's complaints handling procedures, including the internal dispute resolution process and the external dispute resolution process through FOS, monitoring and reporting on complaints is also conducted monthly to identify issues of conduct of ARs as part of Swann's complaints monitoring program. This complaints monitoring program is intended to identify issues arising from the sales process.

Swann is fully committed to making sure that it and its ARs act honestly and fairly when providing consumers with financial product advice about financial products. Swann will include any additional controls required in remote areas as part of the review it will undertake of its monitoring and supervision of ARs generally.

2. Identification of consumers who will receive refunds

Swann acknowledges the issues raised by ASIC in relation to ~ and - · Swann regards incidents of mis-selling as totally ~ such cases will be fully investigated and addressed in terms of both consumer remediation and consequences for ARs involved. As noted above Swann is considering how best to identify consumers of ••••I including by customer surveys and other direct contact with consumers, in order to determine the most efficient means of identifying consumers who may have been mis-sold an add-on insurance product and the most effective means of communicating with those consumers. Swann welcomes engagement with ASIC and looks forward to discussing this identification program and proposed remediation further with ASIC.

Page 6 of 9 IAG.502.018.4711

3. Unfair outcomes at the point of sale from product design and price

IAG acknowledges ASIC's concerns in relation to product design.

IAG has been actively reviewing its remaining add-on insurance products to support changes to the pricing, design and sale of add-on insurance and remains committed to taking appropriate steps to remediate past conduct, improve consumer outcomes and enhance governance arrangements in this market.

IAG has developed Product Design Principles which will apply to all retail insurance products (not only add-on products), including Swann products. These principles have been reviewed by IAG's Ethics Committee and will be applied to the development of new products and the review of existing products. Products will be required to meet design principles relating to purpose, pricing, communication, sales and distribution practices including third party obligations, incentives and data.

In relation to ASIC's concerns regarding Swann's proposed remediation in relation to the Loan Protection Insurance product, we respond to sub-clauses (a)-(e) on pages 9 and 10 of ASIC's November letter as follows: (a) In relation to circumstances where the value of a single claim is less than the premium amount, as previously confirmed with ASIC, a consumer may make more than one claim under the policy with the possibility of additional claims increasing with a longer loan period. On this basis, Swann does not consider that a single claim of itself would warrant remediation. In any event, Swann has increased the maximum amount payable and the period of coverage for involuntary unemployment cover under all active policies including where a single claim was less than the premium. (b) Swann will refund interest attributable to any premium amount refunded to a consumer due to mis-selling of a Swann insurance product in breach of the ASIC Act. (c) Swann will endeavour to ensure the clear communication any offer of remediation to enable the customer to make an informed choice. Swann is prepared to provide ASIC with a copy of any proposed communications with consumers relating to the proposed remediation. (d) Swann has proposed writing to all consumers with active policies to advise of the increase in benefits under the policy and considers that such communication will provide an opportunity to identify any consumers who were entitled to make a claim and provide remediation in terms of the increased benefits to such consumers. (e) Swann has previously proposed to review all claims for involuntary unemployment cover over the past 7 years (both active and finalised policies) for consumers who may have been affected by the previous maximum amount payable or period of cover for involuntary unemployment cover and provide remediation in terms of the increased benefits to such consumers . As noted above, Swann is prepared to refund interest attributable to the premium financed under an associated loan contract where that premium amount has been refunded to a consumer due to mis-selling.

In relation to ASIC's concerns about sales of Option 1 under Gap policies sold by _ Swann considers · · '' .. I I ... " I I I .. .. d pol icies through will be the most practical way to identify consumers who may have been mis-sold policies and are therefore entitled to a refund.

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Swann has provided information to ASIC pursuant to the section 33 Notice.

In relation to ASIC's request for data, please see attached Annexure A .

4. Summary of unfair conduct and next steps

Conduct by Swann ARs that aims to deceive, constitutes fraud or is otherwise unfair is totally unacceptable to Swann and IAG and is outside the authority of those ARs. Swann and IAG take ASIC's concerns very seriously and have given detailed consideration to past conduct and existing procedures and processes relating to ARs . Swann and IAG acknowledge that there have been examples raised by ASIC of mis-selling but such instances are not easy to identify. Swann has ro osed writin to each consumer who has purchased an add-on product through to ascertain any instances of mis-selling.

Swann has previously proposed remediation in relation to the Loan Protection Insurance and Gap policies. ASIC's November letter has proposed additional remediation which is currently being considered by IAG and Swann.

Given the proposals submitted to ASIC in relation to this remediation by Swann and IAG and ASIC's continuing concerns, Swann and IAG welcome further engagement with ASIC and look forward to discussing this identification program and proposed remediation further with ASIC.

IAG and Swann are, however, concerned that many of the assertions in ASIC's November letter are based on supposition and do not appear to be supported by the facts and data upon which they are based. This and the confrontational tone and threat of litigation in the face of Swann's full and responsive cooperation and willingness to engage with ASIC are of concern to Swann and IAG.

In that regard, we note that: • Swann has responded fully and constructively to ASIC's investigation and its requests for information and Swann and IAG have stated consistently a willingness to address any instances of mis-selling or unfair practices and has invited constructive input from ASIC as to how affected customers might practicably be identified and remediated; • Swann has proposed a remediation approach and has invited feedback and suggestions from ASIC on the appropriate approach, given the difficulty in identifying which customers may have been mis-sold product; • Swann and IAG are also working with the Consumer Advocacy Law Centre (CALC} to address claims by Swann customers identified by CALC through its "Demand a Refund" campaign and have agreed a particular process for addressing these claims. CALC is satisfied with how these claims are being dealt with. However, there have been only some 30 such claims identified to date; • in August, Swann sold its profitable motor dealer distribution business because of concerns around these products and that the business was not aligned with IAG's Purpose, however Swann and IAG have retained the liabilities for policies sold before completion of that sale and accepted responsibility for remediating affected customers; • IAG is participating fully in the Insurance Council of Australia's customer credit insurance and add-on insurance working groups' initiatives, which include a number of proposed product, training, remuneration and supervision changes. ASIC has described these proposals as constructive and going some way to addressing its concerns.

Page 8 of9 IAG.502.018.4713

In light of the above, IAG and Swann do not agree that Swann has taken a particular "stance" in relation to ASIC's ongoing investigation, or that Swann's responses warrant ASIC's threat of litigation, the threat of any Direction under section 912C of the Corporations Act or the issue of the section 33 Notice. In the view of IAG and Swann these steps would needlessly further increase the expenditure of resources and cost to both Swann and ASIC.

IAG and Swann remain ready and willing to meet and engage constructively with ASIC and IAG has scheduled a time on 24 February 2017 to discuss a considered and agreed approach to the resolution of ASIC's concerns.

We look forward to meeting with ASIC to discuss.

Chris Bertuch Group General Counsel & Company Secretary cc: Mr Peter Kell, Deputy Chairman, ASIC

Page 9 of 9 IAG.502.018.4714

ANNEXURE A

Question 1 Please provide a breakdown of sales of CCI policies providing unemployment cover, broken down by the amount of the premium relative to both the figure of $3,000 and the single claim amount, for both contracts where the insurance policy was terminated in the period from 1 July 2010 to 30 June 2016, and policies current as at 30 June 2016. Premium > Maximum amount payable for single claim (based on 90 x 1/30th monhtly Premium > Single claim Premium > Single claim Premium > Single claim Premium > $3000 Premium > $3000 x 85% Premium > $3000 x 70% Premium > $3000 x 55% benefit) x 85% x 70% x 55% Contracts closed in period 1 July 2010 to 30 June 2016 126 168 460 1542 1947 993 2645 2476 Contracts current as 30 June 2016 139 218 462 1135 619 1058 2449 1722

Question 2 Please provide a breakdown of life and trauma insurance policies in the period 1 January 2014 to 31 October 2016 according to the age of the insured at the time of entering into the insurance contract

< 18 years old 18 years old 19 years old 20 years old 21 years old 22 years old 23 years old 24 years old 25 years old > 25 years old Life 2014 9 115 202 230 249 232 221 220 207 4,247 2015 6 110 147 177 177 192 165 153 162 3,174 2016 (to 31/10/16) 1 53 65 95 83 98 107 114 95 1,851 Trauma 2014 2 18 51 52 48 45 44 43 53 973 2015 1 33 33 42 32 45 36 27 27 770 2016 (to 31/10/16) 2 11 16 9 29 25 26 23 29 612 IAG.502.018.4715

Question 3 Please provide a breakdown of gap insurance policies sold in the period 1 July 2013 to 30 June 2016 broken down according to the maximum gap benefit and the amount borrowed by the consumer Amount Borrowed Max Gap Benefit $10K Max Gap Benefit $15K Max Gap Benefit $30K < $5K 36 20 1 $5K to $10K 2953 219 29 $10K to $15K 9271 1967 199 $15K to $25K 23655 14125 642 $25K to $30K 9929 9911 551 > $30K 24205 41060 5941

Question 4 Please provide a breakdown of gap insurance policies sold in the period 1 July 2013 to 30 June 2016 broken down according to the maximum gap benefit and the CCI‐premium adjusted amount borrowed (Amount Borrowed minus CCI/Walkaway Max Gap Benefit $10K Max Gap Benefit $15K Max Gap Benefit $30K premium) < $5K 8 9 0 $5K to $10K 589 70 29 $10K to $15K 2470 838 181 $15K to $25K 9575 7709 456 $25K to $30K 4295 5208 346 > $30K 8957 17867 2373 Note: Only showing instances where the Gap policy was sold with a CCI product

Question 5 Please provide a breakdown of gap insurance policies sold in the period 1 July 2013 to 30 June 2016 broken down according to the maximum gap benefit and the agreed value adjusted amount borrowed

(Amount Borrowed minus CCI/Walkaway Max Gap Benefit $10K Max Gap Benefit $15K Max Gap Benefit $30K premium) minus agreed value under Swann comprehensive insurance policy Negative value 90 11 1 < $5K 275 122 16 $5K to $10K 23 18 5 $10K to $15K 5 2 1 $15K to $25K 0 5 1 $25K to $30K 0 1 0 > $30K 0 0 1 Note: Only showing instances where the Gap policy was sold with a CCI product and a Swann Agreed Value Comprehensive policy

Question 6 Please provide a breakdown of gap insurance policies sold in the period 1 July 2013 to 30 June 2016 broken down for policies where the maximum amount payable in respect of the gap benefit was either $15,000 or $30,000, the amount borrowed, and the CCI and Gap premium adjusted amount borrowed (and multiples of this amount).

Max Gap Benefit $15K Max Gap Benefit $30K Amount Borrowed Amount Borrowed Amount Borrowed Amount Borrowed Amount Borrowed Amount Borrowed Amount Borrowed Amount Borrowed minus CCI/Walkaway minus CCI/Walkaway minus CCI/Walkaway minus CCI/Walkaway minus CCI/Walkaway minus CCI/Walkaway minus CCI/Walkaway minus CCI/Walkaway premium minus Gap premium minus Gap premium minus Gap premium minus Gap premium minus Gap premium minus Gap premium minus Gap premium minus Gap premium premium minus Gap premium minus Gap premium minus Gap premium premium minus Gap premium minus Gap premium minus Gap premium x 15% premium x 30% premium x 45% premium x 15% premium x 30% premium x 45%

< $5K 99992222 $5K to $10K 175 191 210 237 63 72 78 89 $10K to $15K 1277 1377 1460 1546 198 202 201 202 $15K to $25K 8595 8745 8860 8978 520 528 548 556 $25K to $30K 5198 5148 5137 5096 376 379 370 382 > $30K 16447 16231 16025 15835 2226 2202 2186 2154 Note: Only showing instances where the Gap policy was sold with a CCI product Note: Multiples of the Gap premium have been subtracted. For example, 'Gap premium minus Gap premium x 15%' is equal to 1.15 times the Gap premium.

Question 7 Please provide a breakdown of gap insurance policies sold in the period 1 July 2013 to 30 June 2016 broken down according to the maximum gap benefit and the amount of the deposit paid by the consumer towards the purchase price of the vehicle

Deposit Max Gap Benefit $10K Max Gap Benefit $15K Max Gap Benefit $30K < $15K NA NA NA $10K to $15K NA NA NA $15K to $25K NA NA NA $25K to $30K NA NA NA > $30K NA NA NA Note: Deposit paid not stored on Swann's customer record system. IAG.502.018.4716

Question 8 Please provide a breakdown of Walkaway insurance policies sold in the period 1 July 2013 to 30 January 2015 broken down according to the maximum returned vehicle benefit and the amount borrowed by the consumer Amount Borrowed Max RV Benefit $7.5K Max RV Benefit $15K Max RV Benefit $25K < $5K 11 4 0 $5K to $10K 350 19 0 $10K to $15K 1713 331 0 $15K to $25K 6645 3276 18 $25K to $30K 3390 2262 10 > $30K 10820 8057 186

Question 9 Please provide a breakdown of Walkaway insurance policies sold in the period 1 July 2013 to 30 January 2015 broken down according to the maximum returned vehicle benefit and the Gap premium adjusted amount borrowed (Amount Borrowed minus Gap premium) Max RV Benefit $7.5K Max RV Benefit $15K Max RV Benefit $25K < $5K 6 2 0 < $10K 136 10 0 $10K to $15K 599 230 0 $15K to $25K 2643 2406 14 $25K to $30K 1315 1668 11 > $30K 3894 5473 141 Note: Only showing instances where the Walkaway policy was sold with a Gap product

Question 10 Please provide a breakdown of Walkaway insurance policies sold in the period 1 July 2013 to 30 January 2015 broken down according to the maximum returned vehicle benefit and the amount of the deposit paid by the consumer towards the purchase price of the vehicle Deposit Max RV Benefit $7.5K Max RV Benefit $15K Max RV Benefit $25K < $15K NA NA NA $10K to $15K NA NA NA $15K to $25K NA NA NA $25K to $30K NA NA NA > $30K NA NA NA Note: Deposit paid not stored on Swann's customer record system.

Question 11 Please provide a breakdown of Protection Plus insurance policies sold in the period 1 February 2015 to 30 June 2016 broken down according to the maximum returned vehicle benefit and the amount borrowed by the consumer Amount Borrowed Max RV Benefit $7.5K* Max RV Benefit $10K Max RV Benefit $20K Max RV Benefit $30K < $5K 3320 $5K to $10K 122 100 14 1 $10K to $15K 680 541 274 15 $15K to $25K 3203 2370 2085 276 $25K to $30K 1689 1136 1480 315 > $30K 5754 3268 4947 2061 Note: Column added for $7.5k RV benefit. This is the benefit level of the complimentary product.

Question 12 Please provide a breakdown of Protection Plus insurance policies sold in the period 1 February 2015 to 30 June 2016 broken down according to the maximum returned vehicle benefit and the Gap premium adjusted amount borrowed (Amount Borrowed minus Gap premium) Max RV Benefit $7.5K* Max RV Benefit $10K Max RV Benefit $20K Max RV Benefit $30K < $5K 2110 < $10K 15 62 15 1 $10K to $15K 201 375 176 8 $15K to $25K 1257 1671 1664 263 $25K to $30K 728 778 1136 276 > $30K 2653 1984 3623 1668 Note: Column added for $7.5k RV benefit. This is the benefit level of the complimentary product. Note: Only showing instances where the Protection Plus policy was sold with a Gap product

Question 13 Please provide a breakdown of Protection Plus insurance policies sold in the period 1 February 2015 to 30 June 2016 broken down according to the maximum returned vehicle benefit and the amount of the deposit paid by the consumer towards the purchase price of the vehicle Deposit Max RV Benefit $10K Max RV Benefit $20K Max RV Benefit $30K < $15K NA NA NA $10K to $15K NA NA NA $15K to $25K NA NA NA $25K to $30K NA NA NA > $30K NA NA NA Note: Deposit paid not stored on Swann's customer record system. IAG.502.018.4717

Question 14 Please provide a breakdown of Purchase Price Protection lnsurance policies sold in the period 1 July 2013 to 30 June 2016 broken down by the amount borrowed, the maximum gap benefit payable and whether or not Swann provided a comprehensive insurance polciy and, if so, whether it was an agreed value or market value policy

Max Gap Benefit $4K Max Gap Benefit $10K Max Gap Benefit $14K Agreed value policy Market value policy Amount Borrowed < $4K 28 133 105 1 56 $4K to $10K 34 103 83 7 44 $10K to $14K 54 248 228 11 74 > $14K 236 967 2245 24 265

Question 15 Please provide a breakdown of Purchase Price Protection lnsurance policies sold in the period 1 July 2013 to 30 June 2016 broken down by the maximum gap benefit payable, and the sum of the purchase price of the car minus the agreed value under a comprehensive insurance policy between Swann and the consumer

(Amount Borrowed minus agreed value under Swann Max Gap Benefit $4K Max Gap Benefit $10K Max Gap Benefit $14K comprehensive insurance policy) < $4K 2 16 25 $4K to $10K 0 0 0 $10K to $14K 0 0 0 > $14K 0 0 0 Note: only showing instances where a PPP was sold with an Agreed Value Comprehensive policy Note: As per Annexure, this is showing the 'purchase price of the car' minus Agreed Value amount. IAG.502.018.4718

Queition 16 Ptease provide a breakdown of iales b n the period from l Ja nuary 2014 to 31December 2015 of (a) all CCI policies (b) CCI potides ~id for by instalments cind c) Purchase Price ProtectM)n lnsuranc:e ('broken down by the max.imum gap benefit payable}, and the amount borrowed

Purchase Price Protection Insurance Optlon3 ca -paid for by Option 1 Maximum Option 2 Maximum ca. all saies Maximum Benefit Amount of credit Instalments Beneflt up to $4,000. Benefit up to $9,000. up to $14,000. pS30,000 75

Questlon 17 Pf.ease prov;de a breakdown of sates the period from 1 January 2014 to 31 December 2015 of (a) Gap Insurance policies (broken down by policy option) (b) Walkaway Insurance policies (broken down by policy opti<>n) c) Protection Ga p ln.surance products (broken down by option) Protection Plus Insurance products (broken down by optkin) Plus Insurance polide.s (broken down by policy option) and (d) Mechanical B

Gap lnsun1nc::e products Wa:lbway Insura nce Protection Plus Mec::hanlc::al 8'eakdown Max Benetlt Max Benetit Max Benetit Max Benetit products (broken down Insurance produc::b Insurance products Max Benefit Max Benefit Max Benefit Max Benefit Max Benefit =of a-edit {broken down by option} by option) (broken down by option) {bfoken down by option} :~~~~:xtras up ~~Extras up ::'!~~:xtras up ~~tras up ~oa:o:enefit 15000 20000 25000 30000 7500' < $10,0000 Refer to adjacent tcible 0 Refer to adjacent table 1 0 1 0 $10000 to$1SOOO Refer toadjacenttabte 0 Re-fer toadjace-nttable 4 0 $15000to$20000 Refer toadjacenttcible 0 Refer toadjacenttable 9SS 11 19 0 25 13 S20000to$25000 Refer to adjacent table 0 Re-fer to adjacent table 15 11 66 59 22 11 $25000 to $30000 Refer to adjacent tcible 0 Refer to adjacent table 28 27 108 94 28 21 > $30,000 Refer to adjacent table 0 Refer to adjcicent table 26 47 SSS 86 28 402 148 182 Note: A total figurt1 ;s providedfor Mechan;cal Breakdown (warranty} as th t1 options ore numerous and can't bt1 brok.t1n down by om

Question 18 Please pro11ide a breakdown of ;ales by n the period from 1 January 2014 to 31 December 2015 of (a) Gap Insurance pot1c1e$ \Dro1<.en oown Dy j)olicy option) (b) CCI and (c) Mechanic.al Ga p ln$1.lr.tnc::e prodl.Kt$ (broken down by option} Break.down Insurance products (broken down by polity option), and by the amount borrowed

Mecha nical Breakdown Gap lnsur-ance products Mal(Beneftt Max Benefit Ma"Beneftt Max Benefit Max: Beneftt 5000 Max Benefit 7000 Max: 8eneftt 7500 CCI products Insurance products Amount of credJt (broken down by optlon} ) Max Benefit 10000 Max 10000Max lOOOOMax: lSOOOMax 30000Max: Max:ex:pense Max expense Max expense (broken down by option pS30,000 Refer to adjacent table 173 57 19 0 226 9 0 1 0

Questlon 19 nthe == ~;:~eJ :n~=~k=t:';:'~:::m&r £& J1 al M p Insurance policies (broken down by policy option) and (b) Mechankaf Breakdown Insurance products (broken down by poltcyoption), and by the amount borrowed

Ga p Insura nce- products Me S30,000 80 Note: Only th• 15,000Gop option was sold by C•ntro/lon Motors.

Question 20 Pl-ease prcwide a breakdown of transactions by the entities Mmed below, for the period of sales al.so specified below, acoording to the number of Swann add-on insurance products sold to the consumer (whether fnanced under the credit contract or paid for by iMta!ments}

Consumers sold Consumers sold one add Consumers sokt two add Consumers sold three more tha n three onprodud on products add on products Period add on products 2 November 2009 to 11 July 2013 1860 730 306 1January2014 to 31 Dec.ember 2015 1190 350 20 1 January2014 to 31 Oetember 2015 357 492 15 1January2014 to 31 December 2015 1225 629 323 1January2014 to 31 December 2015 390 224 274 33 1January2014 to 3l December 2015 89 80 Not" : As JHr prs11ious ASIC instf'Udjons, 'odd-en' is consid" red to bB any prodvet oth11r than Compr•henslvt.

Question 2l Plllelilaslelip1i'o1'"1d•1 •1 "'i1ii••111kdllownlllllliol ""iiiitclilomelliisllocilicllila;llmlils lilodj gjjed1i11;"1'"°• •1••111iodii1i;nl thileilpeildodJ ' 1 January 2014 to 31 October 2016 in respect of add-on insuranee products lOld by 1 irrespectfve of the date of nle of the product). Number of claims Number of d aims Amount paid In claims Avera.ge daim Median claim P

CCI 0 so so so -Walkaway/ PP fn$U+anc::e 91 20 S160,85S 52,822 S2,3S.S Gap 19 S117,528 S7,835 $6,241 Com.prehensive - Motor Cycle 0 so so so Comprehensive • Motor Vehicle 502 30 Sl,599,521 $3,410 Sl,302

Tyre and Rim 40 11 $6,788 S338 $305 Warranty/Metha nical Break.down Insurance 606 19 108 $567,800 $1,185 $696

CCI 14 sn,4n S7,748 S3,312

Watkaway/ PP ln$u~nce 0 so so so

Gap 17 S124,620 S7,331 $6,293 Comprehensive · Motor Cycle sn,560 S9,695 $6,255 Comprehensive - Motor Vehicle 419 30 Sl, 302,9 10 S3,367 Sl,045

Tyre and Ri m $254 S254 $254 Warranty/ Medianical Breakdown Insurance 292 59 so S245,861 Sl,344 S843

CCI 0 so so so

Walkaway/PP ln$uranc:e 0 so so so

Gap S21,008 SI0,504 Sl0,504 Com.prehensive • Motor Cycle 0 so so so Comprehensive · Motor Vehicle 62 Sl58,555 S2, 734 Sl,370

Tyre and Rim 0 so so so Warranty/Mechanical Bt-eakdown Insurance 25 S29,334 Sl,630 S725

Question 22 Please prcwide a breakdown of sates of Swann add-on insurance p

Warranty/Meehl Purchase Prke Comp

Swann General Advice Training IAG.502.018.4720

Table of Contents

Chapter 1 – Insurance Basics

What is Insurance? ...... 4 Insurance in Australia ...... 4 Intermediary Roles ...... 4

Chapter 2 – Principles of Insurance

Insurance Principles ...... 6

Chapter 3 – The Economy and the General Insurance Industry

Inflation Rate ...... 7 Interest Rate ...... 7 Exchange Rate ...... 7 Return on Investment (ROI) ...... 8 Insurance Reserves ...... 8 Shareholder Expectations ...... 8 Competition ...... 8

Chapter 4 – Insurance and the Law

Privacy Act 1988 ...... 9 General Insurance Code of Practice (GICOP) ...... 9 Corporations Act 2001 ...... 9 Insurance Contracts Act 1984 ...... 9 ASIC Act 2001 ...... 9

Chapter 5 – Insurance Products

Types of Insurance Products ...... 10 Life Risk Insurance ...... 10 Investment Life Insurance ...... 10 General Insurance ...... 10 Wholesale/Retail Products ...... 11 Developing New Insurance Products ...... 11

Chapter 6 – Risk, Underwriting and Premiums

What is Risk? ...... 12 Transferring Risk ...... 12 Underwriting and Risk ...... 12 Underwriting Issues – Non-disclosure and Misrepresentation ...... 12 Premiums ...... 13

Chapter 7 - Risk Assessment

Risk Assessment ...... 14 Customer Assessment ...... 14 Portfolio Assessment ...... 15

Chapter 8 - Taxation

Taxation and Insurance in Australia ...... 16 Fire Services Levy ...... 16 Stamp Duty ...... 16 GST ...... 16

Chapter 9 - Making a Claim

Making a Claim ...... 17 Short Tail Cla;ms ...... 17 Long Tail Cla;ms ...... 17

Chapter 10 - Insurance Documents

Application I Proposal Form ...... 18 Product Disclosure Statement (PDS) ...... 18 Pol icy Schedule ...... 18 Endorsement Schedule ...... 19 Exclusions and Conditions ...... 19 Financial Services Guide (FSG) ...... 20

Chapter 11 - Financial Product Advice

Factual Information ...... 21 Providing Advice ...... 22 General Advice ...... 22 Personal Advice ...... 22

Chapter 12 - The Selling Process

The Selling Process ...... 24 Verbal FSG Checklist ...... 25 Verbal PDS Checklist ...... 25 Prohibited Behaviours ...... 27 Misleading or Deceptive Conduct ...... 27 Unconscionable Conduct ...... 27 False and Misleading Representations ...... 27 Harassment and Coercion ...... 28

Chapter 1 – Insurance Basics

What is Insurance? General Insurers

Insurance is essentially the ‘pooling’ of small amounts General insurers sell policies which cover specified of money called premiums which are received from risks. These are divided into personal and many people called insureds. These premiums are commercial policies. Personal insurance policies used to pay losses or claims for those who incur them. comprise insurances such as home, motor vehicle, This involves managing funds over long periods of consumer credit, travel, landlord’s and boat time, which may be up to 30 years, in order to pay insurance. Commercial insurance policies include claims when needed. Professional Indemnity, Property, Industrial Special Risks, Machinery breakdown, Broadform liability and Capital is what an insurance company sets aside or Voluntary Workers personal accident. reserves in addition to the money in the ‘pool‘. Capital provides a buffer against a large number of claims occurring at the same time. This could happen Health Insurers after a natural disaster, such as a large storm, earthquake or bushfire. Capital is also used by an Health insurers provide insurance coverage for items insurance company to invest in new products, such as hospital, optical, dental, physiotherapy and projects, acquisitions, etc. Insurance companies use other medical expenses. reinsurers to provide “insurance for insurance companies” to protect against large concurrent losses occurring. Reinsurance is the means of transferring Intermediary Roles risk from an insurance company to a reinsurer.

There are several types of intermediaries who sell insurance. We will focus on three in particular – Insurance in Australia Agents/Commercial Organisations and Brokers.

The Australian insurance market consists of underwriters such as Swann and CGU, brokers which Agents/Commercial Organisations arrange insurance on behalf of clients and other intermediaries such as agents and distributors which Agents represent the underwriter (like Swann) and sell insurance as an adjunct to their main business e.g. sell the underwriter(s) products. Under the car dealers. Corporations Act agents became authorised representatives of licensees. Agents can represent one or more underwriters and are acting on behalf There are three major groups of insurers within the of the underwriter, not the client. Agents are Australian insurance market – Life insurers, General sometimes financial planners and sell insurance as insurers and Health insurers: an adjunct.

Life Insurers

Life insurance provides a lump sum or equivalent instalments in the event of death or diagnosis of certain terminal illnesses. Life insurance is sometimes referred to as ‘term insurance’ or ‘death cover’ Most policies will allow an insured to add optional components to cover total and permanent disability and illnesses that, while not terminal, may significantly impact an insured’s ability to earn an income. Life insurers may also provide some investment products such as superannuation and life There are three types of agent representatives - bonds. Corporate Authorised Representatives, Authorised Representatives, and sub authorised representatives:

Agents/Commercial Organisations (cont.)

Corporate Auth?rised Authorised Representatives Sub - Author~sed Representatives Representatives

Corporate Authorised Representatives are companies Authorised Representatives are the Sub-Authorised Representatives are authorised by a licensee. They have same as Corporate Authorised individuals who sell insurance on the ability under the Act to sub Representatives except that the behalf of Corporate Authorised authorise individuals to sell the individuals are registered with ASIC Representatives. They are not underwriters products without by the licensee. registered with ASIC. registering the individuals with AS IC.

Finance Brokers management needs. The usual services of a client's insurance program can, where appropriate, be supplemented by a number of the fo llowing additional Brokers represent their clients and therefore seek quotes for cover from several underwriters and services: present these to their clients. The underwriters are provided with information about a client's specific • claims management risks, claims history, types of policies previously held • specialist claims advice and risk mit igation strategies. Each underwriter who broker settlement of claims under self insured wishes to quote will respond by providing policy • retention pools details setting out the cover(s) proposed together with cost. The broker will analyse this information and • provision of technical expertise such as present it to the client together with the broker's engineering, maritime, recommendation. During this process there will be a • litigation series of negotiations between brokers and occupational health and safety audits and underwriters about the terms of cover and ways and • programs means of reducing the premium until the best overall proposition is found. • property valuations • risk surveys, management and analysis An almost unlimited range of broking services are delivery of risk management education and available to the public and even though an • organisation may not have the internal resources to manuals. deliver a specific service to a client, other • technical and legal services organisations can provide them, such as: • review of existing programs placed with other broking organisations • risk management consultants • due diligence audits, litigation management • legal advisers and advice on contractual liabilities property valuers • It is important to remember that a broker acts on • technical consultants . behalf of the insured not the insurer. Under the Corporations Act, brokers are licensed by ASIC. Clients often use brokers as a 'one shop' solution for all their business or personal insurance and risk

Chapter 2 – Principles of Insurance

For example, when comprehensive insurance Insurance Principles customers have an accident and they are not at fault, and they provide Swann with the details of the person responsible, Swann uses its right of subrogation. We indemnify insureds by paying their claim and then There are five principles of insurance as set out in the recovering the costs from the person responsible or Insurance Contracts Act 1984: his/her insurance company.

▪ Insurable Interest ▪ Indemnity Duty of Utmost Good Faith ▪ Subrogation ▪ Duty of Utmost Good Faith The duty of utmost good faith applies to both Swann Insurance and its customers. ▪ Duty of Disclosure

The duty of utmost good faith requires Swann and its insureds to be completely fair and honest towards Insurable Interest each other when they enter into an insurance contract and in all dealings they have with each other. There The following conditions must exist for a person to must be no intention to deceive or mislead. have an insurable interest in property: If insureds fail to comply with the duty of utmost good faith, Swann may refuse to pay a claim, cancel their ▪ The item must be capable of being lost or policy or do both. If Swann fails to comply with the damaged duty of utmost good faith it may have to pay claims ▪ The item must be the subject of the insurance that would not normally be covered. ▪ The person must benefit from the preservation of the item and be disadvantaged by its loss. Duty of Disclosure An insurable interest can arise through ownership, possession or contract. The interest does not need to The duty of disclosure applies to insureds and aims to exist at the time the policy is taken out but must at ensure that customers provide all relevant information the time of loss so that a claim can be made. that enables the insurer to make an accurate

assessment of the risk.

Indemnity The duty of disclosure applies when insureds apply, renew, change or reinstate policies. It is the insurer’s Indemnity means that insureds should be restored to responsibility to ask specific questions about the risk the same financial position they were in immediately which must be answered truthfully and in a way that a prior to the loss. Insureds should not profit from a loss reasonable person in the circumstances would answer or be disadvantaged by it. Indemnity can be provided them. These are requirements under the Insurance in three ways: Contracts Act 1984

Insureds in meeting their duty of disclosure do not ▪ Cash need to tell Swann anything that: ▪ Repair ▪ Replacement by an item of the same or ▪ Reduces the risk. equivalent age and condition ▪ Is of common knowledge.

▪ Swann knows or as an insurer should know. Subrogation ▪ Swann indicates that it does not want to know.

Swann has a legal right to take the place of an insured to recover costs from a third party who is responsible for a loss to the insured and is reimbursed by Swann.

Chapter 3 – The Economy and the General Insurance Industry

Economic factors which Interest Rate impact the General Insurance In general, interest rates represent the cost or price of Industry money. When people deposit money into bank accounts they will earn interest on the deposited money. In a similar way when money is borrowed from The state of the economy at local, national and global a financial institution a percentage of the amount is levels will have an affect on insurance markets. Other charged as the cost of borrowing. For an insurance factors such as disasters like cyclones, earthquakes, company interest rates will affect the interest earned bushfires, tsunamis and acts of terrorism also impact on capital it has invested and also on moneys it may an economy. We will now focus on three specific wish to borrow to expand the business for future economic factors which impact on the General projects, mergers, acquisitions, etc. Insurance Industry - inflation, interest and exchange rates.

Inflation Rate

Inflation is the increase in the general price level for goods and services in the economy over a period of time. In Australia one of the primary methods of measuring inflation is by monitoring the Consumer Price Index (CPI). CPI tracks the prices of a range of goods and services each quarter. The inflation rate most commonly stated is the percentage increase in the CPI over the previous year. To calculate a 12 month inflation rate in any given year you must add Exchange Rate together the inflation rate % movements of the last four quarters. Inflation affects the claims costs and The exchange rate is the purchase price of one expenses of an insurance company. country’s currency in terms of another. For example $1 Australian will purchase, say, 0.67 Euros depending upon Australia’s economic position compared to the Claims Costs Euro zone. A strong Australian dollar can hinder our exports which become more expensive for foreign Claims costs are the costs incurred by an insurance countries but make imports cheaper. A weaker company during the claim process. When inflation Australian dollar can drive up the costs of imports rates are higher, the cost of repairs and replacement leading to inflation but can also make our exports of insured goods may increase outweighing the cheaper for foreign countries. premium collected to cover the risk. Other influences such as the frequency and severity of storms, changes in technology and reinsurance costs also impact on the These three rates affect the following for an insurance cost of claims. company:

▪ Return on Investment Expenses ▪ Insurance Reserves ▪ Shareholder Expectations In the process of running an insurance business, ▪ Competition administration and management costs and expenses (apart from claims costs) are incurred. For example, salaries, commissions, premises and computers. Changes in the wider economy have either a positive or negative effect on these expenses.

Chapter 3 - The Economy and the General Insurance Industry (cont.)

Return on Investment (ROI)

ROI is a measure of a company's ability to turn its capital into profit. An insurance company's capital is generated through the premiums it collects, through the investment income of those premiums and share issues, etc. Changes in inflation, interest and exchange rates affect the income from this investment and as such the insurance company's profitability.

Insurance Reserves

Insurance companies are required to maintain cash reserves to cover the payment of claims. Insurance companies set premiums that will generate sufficient premium to cover projected short-term and long-term claims, commissions and other management and administration costs. They also leave a margin for profit which is known as the 'underwriting profit' . The amount required to be reserved is a percentage of premium income. The size of the reserve is reviewed on a regular basis.

Shareholder Expectations

Shareholders of insurance companies expect a return on their investment. High interest rates may produce higher investment returns but economic, social and environmental events can impact on shareholders perception on whether to invest in the insurance sector or a particular company. Global occurrences, such as tsunamis, bushfires or floods show how significant events can lead to an insurance catastrophe, an economic crisis and negatively impact on the expectations of shareholders.

Competition

The Australian general insurance market has a significant number of companies operating although this has reduced over time through mergers/ takeovers. Competition between companies for business helps to ensure competitive pricing, efficient business processes and products that meet consumers' needs. The Australian Competition and Consumer Commission (ACCC) is the governing body responsible for ensuring fair competition in the Australian insurance market and wider economy.

Chapter 4 – Insurance and the Law

Matters concerning the Corporations Act, ASIC Act and financial hardship, handling claims, natural disasters the Insurance Contracts Act are covered throughout and providing information to customers. this module. Separate online web based training A major aspect of the GICOP is the opportunity for modules are required to be undertaken in respect of dissatisfied customers to approach the Financial the Privacy Act and the General Insurance Code of Ombudsman Service (FOS) which independently and Practice (GICOP) to be accredited to sell Swann impartially resolves financial services disputes, insurance. A brief explanation of the laws which have including general insurance disputes, between an impact on insurance companies can be found participating companies and consumers. below: FOS assists each company signed up to the Code to meet the required standards. If a company does not, Privacy Act 1988 it can be required to take action to fix the problem and sanctions may be imposed. To register a complaint with FOS a customer is required to: From 1 January, 2001 the Federal Privacy Act was amended to include the National Privacy Principles. - First approach Swann to lodge a complaint. This means all Australian companies are required by - If the dispute remains unresolved, or the customer law to ensure customers’ personal information is is unhappy with the decision, the customer can collected, maintained and disclosed according to the contact FOS. National Privacy Principles.

Personal Information is classified as customers' personal details: name, address, telephone number, Corporations Act 2001 date of birth, insurance policy details, claims history, etc. Personal Information can also be any other Chapter 7 of the Corporations Act sets out the information that could be drawn by inference e.g. requirements for dealing and advising in financial famous Australian female actor who is married to an products including licensing of providers, authorising Australian country and western singer based in the US. representatives, oral and written disclosure, notification of breaches and restrictions on cold Every representative is responsible for protecting calling (anti hawking). customers' information and must ensure such information is not subject to misuse, loss, unauthorised access, modification or disclosure.

It is important to be proactive to protect customers' Insurance Contracts Act 1984 personal information, particularly more private and sensitive information such as medical histories. If at This Act sets out the conduct required by insurers and any time customers ask how we use their information, their clients in respect of the sales of insurance. It refer them to the 'The way we handle your personal defines standard cover which are the types of policies information' section contained in all our policy to which the Act applies and the concepts of duty of wordings. disclosure and duty of utmost good faith. The Act also covers broader requirements such as policy cancellation and renewals. General Insurance Code of Practice (GICOP) ASIC Act 2001

GICOP is a set of customer service standards that The ASIC Act deals with prohibited behaviours such as Swann has agreed to follow in its aim to be open, fair misleading and deceptive conduct, unconscionable and honest in the way it deals with its customers. The conduct, false and misleading representations and standards cover buying insurance, making claims, harassment and coercion.

Chapter 5 – Insurance Products

Types of Insurance Products its 'maturity') or on earlier death. Endowment policy typical maturities are ten, fifteen or twenty years up There are three main insurance product types; these to a certain age limit. Some policies also pay out in are Life Risk Insurance, Life Investment Insurance and the case of critical illness. General Insurance. General Insurance is split into Commercial and Personal Insurance. Policies are typically traditional with-profits (known as bonuses) or unit-linked (including those with unitised with-profits funds). Endowments can be cashed in early (or 'surrendered') and the holder then receives Life Risk Insurance the surrender value which is determined by the insurance company depending on how long the policy

has been running and how much has been paid in Life risk insurance or life assurance is a contract premiums. between the policy owner and the insurer, where the insurer agrees to pay a sum of money to the insured or designated beneficiaries upon the occurrence of the insured’s death or other event, such as terminal or critical illness. In return, the policy owner agrees to General Insurance pay a premium at regular intervals.

The value for the policyholder/s is derived, not from an actual claim event, rather it is the value derived Commercial Insurance from the 'peace of mind' experienced by the policyholder, as the policy will combat any negative financial consequences caused by the death of the Commercial insurance products can be divided into: insured. ▪ Assets and revenue Life policies are legal contracts and the terms of the ▪ People contract describe the limitations of the insured events. Specific exclusions are often written into the ▪ Liability contract to limit the liability of the insurer; for example claims relating to suicide, fraud, war, riot and civil commotion. Assets and Revenue Products

Life-based risk insurance contracts fall into two major These include a host of covers such as building and categories: contents, burglary, business interruption and loss of profits, deterioration of stock, electronic equipment, farm insurance and goods in transit etc. ▪ Protection policies - designed to provide a

benefit only in the event of specified event (eg: death or disablement), typically a lump sum payment. These are risk only policies People Products which contain no investment component. A common form of this policy is term insurance. This includes workers compensation and personal accident and sickness. ▪ Investment policies - where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms Liability Products are whole life or endowment policies.

This includes public liability, professional indemnity and product liability. Investment Life Insurance

An endowment policy is a life insurance contract designed to pay a lump sum after a specified term (on

Chapter 5 – Insurance Products (cont.)

General Insurance (cont.)

Personal Insurance

There are seven personal insurance types listed in the Corporations Act plus any prescribed by the Regulations. These are:

▪ Home building ▪ Home contents ▪ Motor Vehicle ▪ Consumer Credit Insurance ▪ Travel ▪ Sickness and Accident ▪ Personal and domestic property

Wholesale/Retail Products

Products fall into two types, wholesale and retail.

Retail products are itemised in the Corporations Act – see under 'Personal Insurance' above. Products outside this definition are therefore deemed to be wholesale. An example of a wholesale product is an extended motor vehicle insurance warranty which is not included in the list above.

Developing New Insurance Products

New insurance products are developed by insurers in response to identified needs or business opportunities. The impetus for new product development has also come from those involved in marketing insurance, for example, banks and insurance brokers. There are some examples below:

▪ Motor Vehicle and Motorcycle Tyre and Rim insurance; ▪ Motorcycle Rider protection plus; ▪ Bill protection (your BillProtect); ▪ School Fees (your FeeSecure)

Chapter 6 – Risk, Underwriting and Premiums

There is a process that is followed to decide if the What is Risk? insured is a suitable ‘risk’. Where an insurance company perceives there is a high risk it may choose not to provide insurance or place restrictions or Risk is ‘the chance of something happening’ which limitations on cover. This means that based on the could have a positive or negative impact. In the information provided by the customer, it has context of insurance it means the possibility of assessed the chance of having to pay out on a claim suffering loss or damage from a particular event like as high. A number of specific questions are asked an accident, storm, etc. Insurance is only concerned when assessing risk. with ‘adverse outcomes’ which are those that involve financial loss, that is, the risk of losing money.

A risk can be treated four ways: Underwriting Issues – Non- disclosure and Misrepresentation ▪ Avoided (i.e. you don’t buy a car or house) ▪ Accepted (i.e. you pay for any losses It is important when selling a policy that the nature yourself) of the risk is correctly identified as underwriting issues are often detected at claim time. They can ▪ Reduced (i.e. you put an alarm on your car involve issues relating to non - disclosure and/or or house) misrepresentation in terms of what an insured told ▪ Transferred (i.e. you buy insurance). Swann when a policy was taken out, varied, renewed or reinstated. There are two different types of risks – insurable risks and uninsurable risks. An uninsurable risk is Non-disclosure is where an insured fails to disclose one where the potential for loss is too high or where relevant information whereas misrepresentation is the risk is considered illegal, criminal, or prohibited. where an insured makes a statement to Swann which These risk types are important when looking at is not true. There are two types of non disclosure transferring risk. and misrepresentation:

Fraudulent non-disclosure and misrepresentation is Transferring Risk where an insured deliberately lies or withholds information so that a cheaper premium is charged or insurance obtained for a risk that may be Individuals can transfer risk by paying a premium to unacceptable under Swann’s guidelines. Examples an insurance company to underwrite the risk. include non-disclosure of drink driving convictions Insurance is only one way of transferring risk. when applying for motor vehicle insurance. Individuals transfer risk to an insurer like Swann Insurance. Swann calculates the cost of insurance Innocent non-disclosure and misrepresentation Is premiums by putting a financial value on the risk. when an insured innocently fails to disclose This calculation process of assessing risk is called information or innocently makes a false statement. underwriting. An example would be if an insured was not aware that a vehicle had been modified at the time of an application for motor vehicle insurance. Underwriting and Risk If a non-disclosure or misrepresentation is fraudulent and altered the premium or affected the risk terms The term underwriter means to ‘take liability for the and conditions on which the risk was accepted, risk involved in offering insurance’ and generally Swann could choose to reduce the amount paid on a refers to the company that issues the insurance. claim. This may occur through the payment of an Insurance companies do not offer their insurance to additional premium or higher excess. Swann may everyone. In Swann’s case its underwriting is mostly alternatively choose to cancel a policy depending on automatically performed online through the ActiV8 & the severity of the non-disclosure or Swift systems at the point of sale. misrepresentation in accordance with the requirements of the Insurance Contracts Act 1984.

IAG.502.018.4731

Chapter 6 – Risk, Underwriting and Premiums

Premiums

A premium is the amount a customer pays for an insurance policy. The level of risk assessed by the underwriter is used to help calculate the base premium which is the premium amount before any of the following are added:

▪ Claims costs ▪ Commissions ▪ Federal and State taxes e.g. Goods and Services Tax (GST) ▪ Administration expenses ▪ Reinsurance costs ▪ Profit

Depending on the type of policy the premium may be payable on a yearly basis or upfront for policies with a multiple year term. A premium may be paid for by the customer at the time of purchase or the premium cost included as part of a financial agreement like a loan.

Pricing Insurance Products

Clients pay a premium for insurance coverage. The amount of premium charged depends on the risk to an insurer that a claim will be made by an insured. For this reason, high levels of risk attract high premiums. Similarly, if there is a risk of a substantial claim or frequent small claims, premiums may also be high.

To determine the pricing of an insurance risk product, an insurer will consider a number of factors. For example, if a customer wants to take out motor vehicle insurance, factors that will determine the price will include:

▪ vehicle type including modifications and ▪ geographical location of vehicle; accessories ▪ garaging security; ▪ driver‘s age and insurance history ▪ level of cover selected and optional ▪ additional drivers of the vehicle additional benefits

Some risks will not be accepted by insurers, for example a young male driver with a poor claims history wishing to insure a modified high-powered vehicle.

Pricing of New Products

One of the problems faced by insurers when developing new products is the issue of pricing. There will often be little or no historic data on which to base claims projections and administration costs. At times some insight can be gained from products that are similar to the one under development as well as market research, etc.

IAG.502.018.4732

Chapter 7 – Risk Assessment

Risk Assessment Risk Factors

Insurers carry out many different types of risk Risk factors that relate to individual or assessments including: organisational risk assessment are associated with the activities of the individual or organisation, such as: ▪ Financial risk assessments before investing premiums and capital moneys ▪ the nature of the activities ▪ Performance and profitability risk assessments on potential new reinsurers ▪ the manner in which the activities are undertaken—e.g. with Products Liability ▪ Economic risk assessment prior to insurance introducing a new product into the market ▪ Marketing risk assessments on potential new Moral factors require consideration of the character intermediaries selling their products and integrity of an individual, which may increase the chance of a loss—e.g. a fraudulent claim. In this section we will consider risk assessment as it relates to: Moral factors relate to carelessness to a loss due to the existence of insurance coverage—e.g. an insured ▪ Customer Assessment (whether of an may forget to lock their car because they are aware individual or organisation), and it is insured and therefore become careless. This risk factor can be controlled by enforcing policy ▪ Portfolio Assessment conditions such as taking reasonable steps to protect property. Both assessment processes include risk identification and risk evaluation. Let’s look at each of these in No single method of risk identification, whether it is more detail. desk research or on the spot inspection, is likely to reveal all the risks that an organisation or individual is exposed to. An insurer must select those common- Customer Assessment sense methods that in the situation promise the most cost-effective results.

Risk identification is an ongoing process; Risk Identification organisations and individual life circumstances are dynamic, and even the most stable and conservative Risk identification is a skill of an underwriter. It is organisation or person is subject to a changing about recognising potential risk factors or losses world. which an insurer might face.

A proper assessment cannot be made until an underwriter knows the exposures or vulnerabilities of Past Records the individual or organisation seeking insurance. Risk identification begins with the information provided Records of past incidents or losses, whether insured on the proposal. Where the assets of an individual or self-insured, provide insurers with a very useful organisation are large or complicated, an insurer resource. These records include details of insurance may request detailed reports from risk managers, claims both for each customer. This not only accountants, surveyors and/or assessors so that they provides evidence of potential sources of loss but can accurately identify the risk factors involved. also of loss probabilities and consequences that assist in the risk assessment process.

IAG.502.018.4733

Chapter 7 – Risk Assessment (cont.)

Past Records (cont.)

The following risk factors are examples of those used in motor vehicle insurance:

▪ make, model and use of vehicle; ▪ value of vehicle; ▪ modifications and accessories; ▪ geographical location—both of area and where normally garaged; ▪ financial arrangements—lease, etc; ▪ age of customer and other drivers; ▪ driving experience/history; ▪ claims history and conviction history; ▪ previous insurance details; ▪ no claim bonus discounts entitlement

Portfolio Assessment

Risk identification can also involve monitoring the entire portfolio of an insurer to ensure that performance outcomes:

▪ Will not be adversely impacted by changes in the economy, society or physical environment ▪ Conform to expectations established by management.

Risk factors that relate to portfolio assessment are associated with:

1. The social, legal and political environment in which the business operates. Examples of these risks include legislative provisions relating to responsibilities for injuries arising from defective products, political risks, and levels of unemployment.

2. Exposure to changes in weather patterns and natural catastrophes. For example, global warming is expected to result in a rise in sea levels, and extreme weather events becoming more frequent and wide-spread.

3. Underwriting guidelines including adequacy of rating levels, acceptance rules, contract terms and monitoring systems.

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C hapter 8 – Taxation

Taxation and Insurance in Stamp Duty Australia Rates for stamp duty vary among the different states/territories of Australia - it’s commonly charged There are both state and federal taxes on insurance in at around eight to ten per cent, but is as low as three Australia. The main taxes which impact insurance are per cent for certain types of insurance. payable in the order shown:

▪ Fire Service Levy (FSL) (state) ▪ Goods and Services Tax (GST) (Federal) Goods and Services Tax (GST) ▪ Stamp Duty (state). At a Federal level, taxation is via the 10% Goods and Services Tax (GST). The GST came into effect in Australia from 1 July 2000 and it introduced some new Fire Services Levy (FSL) administration and taxation requirements associated with general insurance products. The Fire Services Levy is an additional charge to the policy holder where the policy insures real property The insurance premium (excluding stamp duty) for (buildings) for fire. The Fire Services Levy does not general insurance risk products supplied in Australia apply to motor vehicle or motorcycle insurance. The now includes the GST. GST is applied after Fire levy is calculated as a percentage rate applied to the Services Levies, but does not include Stamp Duty base premium charged. Its purpose is to fund the cost charges. Stamp Duty is applied to the total of the of providing a fire brigade for that particular state. premium plus the Fire Services Levy and the GST.

This tax is a state based tax, only New South Wales and Tasmania fund their fire brigades through a levy on insurance policies—other states fund their brigades Example through levies charged through property rates. Premium $100.00 Where the levy is charged on insurance, the rate FSL (say 1% NSW MV only) $ 1.00 charged differs among states/territories. The rate $101.00 might differ between metropolitan and country fire GST (10%) $ 10.10 services, and between domestic risks and commercial $111.10 or business risks. Fire services levies vary from time to Stamp duty (say 10%) $ 11.11 time as the costs of supplying fire brigade services Total premium $122.21 vary.

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Making a Claim

A claim occurs when insureds contact their insurance company seeking to claim under a policy of insurance because the property they have insured with the insurance company is lost, stolen, damaged or destroyed.

If a claim falls within the insurance cover offered by the insurance policy, the insurance company uses the money from the 'pool' to pay the claim. Paying a claim is the moment of truth for an insurance company.

Insurance companies sometimes categorise claims into two groups, known in the insurance industry as 'short tail' and 'long tail' . The "tail" refers to the time for a claim to be lodged in accordance with the policy. The characteristics of both claim types can be found in the table below:

Short Tait Claims Long Tail Claims

Short Tail Claims generally are: Long Tail Claims generally:

• known and settled within a short period of • relate to personal injuries e.g. consumer credit time, usually within 12 months e.g. motor insurance, workers compensation, public vehicle, home and contents; liability; • not hard to manage; • may not be reported within 12 months, (like the effects of an injury); • easy to work out the exact amount to be paid out; and • can take three to four years and sometimes as long as 20 years to emerge; • are often based around property . • are harder to work out the final amount to be paid out; and

• are sometimes based around medical and legal outcomes.

When lodging a claim an insured will normally be required to inform the insurance company within a certain number of days of the loss. An insured will also be required to submit a claim form and depending on the type of insurance may also have to pay an excess on the claim. The payment of a monetary excess normally occurs for policies such as Motor Vehicle and Motorcycle insurance. For personal injury insurance the excess may take the form of a set number of days of illness or injury before a claim is paid. An example is Consumer Credit Insurance. An insurance company may also request additional information from an insured or from other parties to support a claim for example a police report for a motor vehicle insurance claim or medical records for a disablement claim.

Chapter 10 – Insurance Documents

An insurance policy is a contract between the insurer and an insured. The policy can be made up of a number of different documents including:

▪ Application / Proposal Form ▪ Policy Schedule ▪ Policy Wording ▪ Endorsement Schedule

Application / Proposal Form

An application form (also known as proposal) is the insureds written request for an insurance policy. This document contains questions which an insurer will ask an insured. The answers to these questions will determine if a risk can be accepted and the terms, conditions, exclusions and premiums which will apply. At Swann, the majority of underwriting is completed through the online ActiV8 system which replaces the need for a written application form.

Product Disclosure Statement (PDS)

A PDS outlines the different provisions of an insurance policy including:

▪ Extent of cover ▪ Information on policy application and ▪ General exclusions and conditions cancellation ▪ Specific terms used ▪ Information on how to make a claim ▪ Responsibilities of the insured and the ▪ Information on complaint and dispute insurer resolution handling

The PDS must be given to a customer at the beginning of providing a customer quote.

Policy Schedule

A Policy Schedule is also known as a Certificate of Insurance and is the written evidence of an insurance contract. It outlines the agreement between the insurer and the insured. It provides information which is customer specific including:

▪ Policy number ▪ Period of insurance. ▪ Sums insured ▪ Details of the customer ▪ Location of insured property ▪ Property to be insured ▪ Other parties—e.g. mortgagee ▪ Premiums and excesses

At Swann a Policy Schedule is created for a customer through the ActiV8 system at the point of sale.

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Chapter 10 – Insurance Documents (cont.)

Endorsement Schedule

An endorsement schedule is a document that confirms any alteration to the coverage, terms and conditions of an insurance policy. It can also include information from an original policy schedule which has not changed. A new endorsement schedule will replace the original schedule. Examples of basic policy endorsements include change of name or address.

An endorsement schedule does not contain other information such as commissions, complaints or general advice warning etc.

Exclusions and Conditions

Exclusions eliminate or reduce cover. Conditions qualify the promise of the insurer by imposing duties upon the customer, duties that must be met for the promise of protection to be fulfilled.

In insurance policies exclusions or conditions can be categorised as follows:

General Exclusions

▪ General exclusions and conditions—are applicable to all policy sections and will usually be grouped together under sections headed Exclusions and Conditions. ▪ Particular exclusions and conditions—relate only to particular aspects of cover. Current practice is to place all exclusions and conditions together in policy documents to assist clients to easily comprehend what is and what is not covered.

Exclusions appear in policies to:

▪ Eliminate cover which is available under another class of insurance ▪ Assist in the management of the moral hazard ▪ Eliminate cover for risks which are considered unsuitable for insurance ▪ Eliminate cover requiring special underwriting consideration

General Conditions

General conditions are conditions that apply to all sections of a policy, for example:

1. Insured’s obligations - to take reasonable care to avoid loss, comply with statutory obligations, etc. 2. Alteration of Risk - an insurer’s written consent to be obtained when material changes to the risk occur. 3. Cancellation - sets out the rights of an insured and insurer to cancel the policy. In Australia, the rights are limited to those under section 60 of the Contracts Act. An insured must give written notice of cancellation.

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Chapter 10 – Insurance Documents (cont.)

Standard Cover (Australia)

In Australia, under the regulations to the Insurance Contracts Act 1984 (Cth), six classes of personal lines insurance are named as prescribed contracts. These classes are:

▪ Motor Vehicle ▪ Personal Accident & Sickness ▪ Home Buildings ▪ Consumer Credit ▪ Home Contents ▪ Travel.

The standard cover that an insurer must give under a prescribed contract is specified in the regulations of the Act. Insurers are free to offer more than standard cover but they can’t offer less than standard cover unless they first inform the customer of this fact.

Standard cover tends to be broader than the cover generally offered by insurers. For example, flood is part of standard cover for Home Buildings and Contents insurance. Insurers are generally reluctant to offer flood cover so they ensure that their policy documents clearly point out that flood is not to be covered. A customer is given a copy of the policy at the time a contract is arranged, as required by the legislation. In this example, if an insurer failed to notify the customer that flood was not to be covered (by failing to provide a policy) then standard cover applies, and flood would be included.

The Federal Government introduced standard cover as a means of providing protection to customers who move their insurances from one insurer to another. Insurers have similarly-described products but the cover on offer may differ widely. Standard cover creates a measure of certainty.

Financial Services Guide (FSG)

An FSG is a document that contains specific information about a Licensee or Authorised Representatives so that customers can decide on whether to purchase financial services from them. An FSG contains information including the amount of remuneration, commissions and other benefits that are received from the product issuer as a result of a product sale.

An Authorised Representative is required to provide an FSG when the Authorised Representative begins to deal in an insurance product or when general advice is provided. FSG’s are available through the ActiV8 selling system and are incorporated into the sales process. Further information can be found under Chapter 12 – The Selling Process.

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General insurance is a financial product. Financial product advice is defined as a written or verbal recommendation or statement of opinion that:

• Is intended to influence a customer in making a decision about a particular financial product or • Could reasonably be regarded as being intended to have such an influence.

A representative's level of authorisation will dictate the level of advice that he/she can provide to customers when selling general insurance. This is highlighted in the table below:

Authorised . . . Insurance D1stnbutors Others Represen t a t 1ves

• Factual Information or • Factual Information only • Dependant on the AFSL Licence • General Advice only

It is the responsibility of representatives to identify the difference between Factual Information, General Advice and Personal Advice. The table above shows that Swann only authorises its representatives to provide Factual Information or General Advice only. Swann Authorised Representatives are not able to provide Personal Advice.

The reason for this is that disclosures required under the Corporations Act are different for each and if Personal Advice is given it will be in breach of the Authorised Representative Agreement and therefore the Corporations Act.

Factual Information

The truth or accuracy of factual Information cannot reasonably be disputed. It is not opinion based and suppling factual information does not constitute providing advice.

Product advice is by its nature intended to influence a person in making a decision in relation to a product. An intention to influence can be actual or inferred.

If you choose to provide only factual information do not make any recommendations.

Chapter 11 – Financial Product Advice (cont.)

Providing Advice features of the product and the exclusions etc. The information provided is usually prepared by Swann Insurance in brochures or from product training. Advice is a recommendation or statement of opinion Statements or opinions may be given during the that is intended to influence a person in making a conversations, for example, “In my experience this decision or creates an interest in relation to a product policy is very popular with customers.” or service or could reasonably be regarded as being intended to have such an influence. When providing advice this will naturally also include providing factual The use of these words would be classified as General information. Advice.

The following words or phrases (though not limited to A recommendation or statement of opinion will usually them) when selling general insurance policies would involve a qualitative judgement. Information provided also constitute general advice. in response to a specific question from a client can often be construed as an implied recommendation because of the context in which the response is given. ▪ This product is good for people concerned If a person expressly endorses, this is likely to about…… constitute a recommendation. ▪ I recommend this for people who are concerned about….. ▪ In my opinion for people who want the broadest cover they ….. ▪ in my experience with other customers …..

Should you place the customer into a group or class of people and suggest they purchase because of this you will be seen to be giving general advice e.g. this is good for people who play sport.

Personal Advice

An intention to influence may be inferred from the The factor that determines this type of financial manner in which a statement is presented, e.g. if the product advice is if you have considered the features of two insurance policies are described in customer’s personal circumstances and objectives such a manner as to suggest that one compares more relevant to the insurance product being offered, favourably than the other. This would occur if a before you give the advice or recommend a particular person weights one product over another by insurance product. highlighting features of one over another when they have the same or similar features. An intention to Personal Advice often involves making statements that influence may also be inferred from the surrounding match policy features to the customer’s needs and circumstances, e.g. if the seller stands to benefit from expectations. a client's decision. The use of the following particular words or phrases It is not possible for a person to avoid providing (though not limited to them) when selling general financial product advice merely by making a insurance policies would also constitute personal statement that the person does not make any advice: recommendation or provide any opinion about the product. ▪ Given what you have told me ………it would General Advice probably be a good idea to ….. ▪ Because you are a one income family and Most conversations with customers start with could become ill or have an accident, I would discussions about the types of cover available, the recommend…..

IAG.502.018.4741

Chapter 11 – Financial Product Advice (cont.)

Scenario One – Factual

Information

A client contacts you wanting to buy insurance for his

motor vehicle. The client asks you to explain the

difference between Third Party Liability and

Comprehensive cover and asks for two quotes.

(Note: Telling an inquirer the cost or estimated cost of an insurance product does not constitute the provision of financial product advice). Scenario Three – Personal

During the discussion you simply explain the Advice differences in policy coverage between the two covers and provide the requested quotations. A client has obtained two quotes to insure her motor vehicle: one covers Third Party Liability only and the This is likely to constitute the provision of factual other is for Comprehensive cover. The client asks information because you only supplied factual whether it is worth taking out Comprehensive cover information, making no recommendations or because she is on a tight budget. statements like “most people purchase comprehensive insurance” or “based on your personal circumstances, You ask the value of the vehicle she needs to cover I recommend you take out Comprehensive.” and are told around $10,000. You then say, “how would it affect your budget if you had an accident which was your fault and you had to pay a repair bill of $5,000.”

Scenario Two – General Advice She replied, “I wouldn’t have the money to repair it, I’d be walking.”

A client has obtained two quotes to insure their You then go on to say,” based on your situation I motorcycle; one for Fire and Theft only and the other would recommend full comprehensive insurance.” is for comprehensive cover. The client asks whether it is worth taking out comprehensive cover. This is likely to comprise the provision of financial product advice in particular personal advice because You explain the difference in the coverage between you have taken into consideration the customer’s the two policies. Without referring to any particular personal objectives, financial situation or needs. This circumstances of the client (or their personal led to you saying, ’based on your situation I would circumstances), you then say “that comprehensive recommend full comprehensive insurance.’ cover is the best choice for most people.” To avoid Corporations Act implications when discussing This is likely to comprise the provision of General any insurance issues, including quoting, provide only Advice because the context in which the response is factual information. Should a customer decide to given, suggests a value judgment about the purchase a policy you must comply with all comparative merits of the two policies and the adviser Corporation Act requirements. then goes on to say, “the best choice for most people”.

IAG.502.018.4742

Chapter 12 – The Selling Process

The Selling Process

The following sales process is designed for Authorised Representatives:

IAG.502.018.4743

• Prepare a quote in ActiVB for t he products ident if ied at Step 2. • Guide t he customer t hrough t he appropriate documentat ion from 3. Provide ActiVB (FSG and PDS). Disclosure • When providing t he PDS you must read t he follow ing statement : Documentation 'This PDS details the cover limitations and exclusions that apply to to Customer the policy. You should read the PDS carefu//y as it wm help you to make an informed decision about w hether the policy meets your needs and provides the cover you want'_

• Where a sale is completed over t he phone t he Alllt horised Representat ive must also provide a verbal PDS arn d FSG.

Verbal FSG CheckUst Verbal PDS CheckUst

• Remuneration as noted on the hard copy FSG. • Information about significant benefits or risks. • Details of any associations or relationships that • Cost of product including a breakdown of might reasonably be expected to be capable of excesses, optional additional benefits selected, influencing you in providing the insurance product etc. or financial advice product. • Information regarding the Dispute Resolution • Information about other documents or details Process . that a customer will receive regarding the financial service that is being provided. • Information regarding the cooling off period .

Chapter 12 – The Selling Process (cont.)

IAG.502.018.4745

Chapter 12 – The Selling Process (cont.)

The ASIC Act sets out some prohibited behaviours in ▪ The relative strengths of bargaining positions the selling process which are summarised below. of the parties. There are penalties for breaching the ASIC Act. ▪ Whether, as a result of conduct engaged in by Swann the customer was required to comply with unreasonable conditions. Prohibited Behaviours ▪ Whether the customer was able to understand any documents relating to Swann’s products. ▪ Whether any undue influence or pressure was Misleading or Deceptive Conduct exerted on, or any unfair tactics were used against the customer in relation to the supply

or possible supply of Swann’s products. Misleading and deceptive conduct refers to any statement, action, advertising, pictorial image, ▪ Whether Swann treated the customer in the display, brochure, silence, or any other conduct that is same way it treats other customers in similar misleading or deceptive or is likely to mislead or situations. deceive customers or potential customers. ▪ Whether Swann failed to disclose any risk or impact on the other person’s interests; and Swann’s intermediaries and Swann could be found The extent to which Swann acted in good guilty of misleading and deceptive conduct, even if ▪ there was no intention to mislead or deceive. faith. Consequently, it is important that Swann intermediaries: False and Misleading ▪ Only display, advertise and/or advise Representations statements of fact that can be substantiated by evidence; False representation refers to untrue statements in Disclose accurate information regarding the ▪ connection with the supply or promotion of goods or insurance products and services being services. To ensure compliance with the Act, Swann promoted, advertised or discussed. must not: ▪ Consider the overall impression. Do not leave out important information (silence can be ▪ Falsely represent that Swann’s products are of misleading). a particular standard, quality, value or grade; Keep an eye on advertising claims as they may ▪ ▪ Falsely represent that a particular person has become misleading over time. agreed to acquire Swann’s products; Do not include a single figure total price. ▪ ▪ Represent that Swann products have ▪ Do ensure any comparisons are fair and sponsorship, approval, performance balanced and are based on the “like with characteristics, accessories, uses or benefits like”. that they do not have;

▪ Make a false or misleading representation with respect to the price of Swann products, such Unconscionable Conduct as premiums or excesses; ▪ Make a false or misleading representation Unconscionable conduct is not defined in the Act but concerning the need for Swann products; has been described as being conduct which is not in ▪ Make a false or misleading representation accordance with what is right or reasonable. It usually concerning the existence, exclusion or effect involves an abuse of knowledge or bargaining power or of any condition, warranty, guarantee, right or taking advantage of another party’s situation or remedy; circumstances. ▪ ‘Falsely represent’ means contrary to fact. It In judging unconscionable conduct a court may have does not matter that the person making the regard to a range of factors, the most relevant of false representation knew that it was not true. which, from Swann’s perspective, are:

IAG.502.018.4746

Chapter 12 – The Selling Process (cont.)

Prohibited Behaviours (cont.)

Harassment and Coercion

Harassment and coercion refers to the use of physical force or undue pressure in connection with the supply of goods or services to customers (or potential customers), or payment for those goods and services.

The intention of the legislation is to prevent consumers from becoming the victims of coercion, for example, in relation to high pressure selling. Swann needs to approach this issue with a high degree of caution.