We examine Suncorp Group Limited (“Suncorp”) in the fourth instalment of our series on alleged wrongdoings in the Australian financial services sector.

Royal Commission

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the “Royal Commission”) was established on December 14, 2017, by the Governor-General of the Commonwealth of Australia. The Commissioner will submit an interim report by September 30, 2018 and will provide a final report by February 1, 2019.

Suncorp has been involved in multiple cases in the Royal Commission thus far:

  • Round 3 – Loans to small and medium-sized enterprises (commenced on May 21, 2018)
    • In his closing address, Counsel Assisting stated that it may be open to the Commissioner to find that Suncorp had failed to comply with the Code of Banking practice and engaged in conduct that fell below community standards and expectations, in respect of its conduct regarding a single small business loan highlighted as a case study.
      • In its submission, Suncorp accepted in “some respects” of failing to comply with the Code of Banking Practice and conduct falling below community standards and expectations in the case highlighted. However, Suncorp rejected the open findings regarding the attribution of its conduct.
  • Round 5 – Superannuation (commenced on August 6, 2018)
    • In his closing address, Counsel Assisting stated that it was open to the Commissioner to make multiple findings that Suncorp Portfolio Services Limited (“SPSL”), a subsidiary of Suncorp, engaged in misconduct and conduct that departed from community standards and expectations in relation to the payment of contribution tax surplus amounts and transferring of accrued default amounts which were deemed to prioritise the interests of Suncorp Life & Superannuation Limited (“SLSL”) and financial advisors over the interests of members. Assisting also invited the Commissioner to find that SPSL may have also engaged in conduct that was misleading or deceptive in relation to administration fees in the Everyday Super Product Disclosure Statement (“PDS”).
      • In its submission, Suncorp rejected all allegations.
  • Round 6 – Insurance (commenced on September 10, 2018)
    • In his closing address, Counsel Assisting stated that it was open to the Commissioner to make multiple findings that Suncorp’s subsidiary, AAI Limited (“AAI”, trading as AAMI), engaged in conduct that was misleading or deceptive in relation to its Complete Replacement Cover advertising materials, and conduct which fell below community standards and expectations in relation to the Wye River Bushfires. Assisting also invited the Commissioner to find that the alleged misconduct may be attributable, at least in part, to the internal culture of AAI, which favoured growing the home insurance portfolio over compliance.
    • Assisting also invited the Commissioner to find that AAI engaged in misconduct in the mishandling of its internal systems and processes in handling claims and disputes arising from these claims in relation to a single insurance claim caused by a major storm in the Hunter Valley region (NSW).
      • As of September 25, 2018, the Royal Commission has not made available publicly Suncorp’s written response to the above concerns.

Other issues

Suncorp has otherwise been under regulatory and legal scrutiny for the following practices in the past year:

Misleading advertising

On November 22, 2017, ASIC announced that AAMI (the trading name for AAI) had paid A$43,200 in penalties after the regulator found it had made false or misleading statements on its website and in radio advertisements regarding its Complete Replacement Cover product for home insurance. AAMI’s advertising stated that AAMI would repair or rebuild the insured house, no matter the cost to AAMI. ASIC was concerned that the statements were misleading because they did not disclose that AAMI could choose to arrange the repair/rebuild or choose to pay the policyholder the assessed cost of repairing/rebuilding the house, leaving the policyholder to arrange the repair/rebuild.

Inappropriate add-on insurance premiums

On January 17, 2018, ASIC announced that Suncorp would refund 41,428 add-on insurance customers A$17.2 million for insurance bought through car dealerships that offered little to no value to consumers. The insurance products were sold through MTA Insurance, an entity owned by Suncorp. Specifically, ASIC found that the MTA Guaranteed Asset Protection (“GAP”) insurance was unlikely to benefit policyholders and that the GAP policy was unnecessary as it duplicated replacement vehicle cover. Further, customers were sold a more expensive level of GAP cover than required. In addition, the MTA Consumer Credit Insurance (“CCI”) life cover products were unlikely to benefit the policyholders if they had no dependents.

Glass Lewis commentary

In relation to the Royal Commission, we note that the Royal Commission is ongoing and that many of the open findings regarding Suncorp are in dispute. However, shareholders may wish to assess the materiality of the open findings that Suncorp has accepted.

The sale of inappropriate add-on insurance premiums and misleading advertising at Suncorp-related entities are problematic, suggesting an insufficient attentiveness to look after customers’ needs.

However, it would appear the issues raised at the Royal Commission and by ASIC in the past year have not raised red flags amongst its shareholders, with all resolutions at its AGM on September 20, 2018 receiving strong support.

We will continue to monitor the outcomes of the Royal Commission and the Commissioner’s final report due out in early 2019.

Andrew Vasey is Manager, Australian research.