Conflicts at CommInsure: more details emerge showing it's time for change

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This was published 7 years ago

Conflicts at CommInsure: more details emerge showing it's time for change

Questions stemming from the CommInsure scandal continue to mount as new details emerge, but concrete answers are harder to find.

By Adele Ferguson and Ruth Williams
Updated

It was one of the most devastating emails in the trove detailing the inside workings of CommInsure. Dr Ben Koh, chief medical officer at the Commonwealth Bank of Australia-owned insurer, was appalled at what he believed was scant regard for doctors' ethical obligations and their professional opinions and raised it with his boss, Helen Troup.

Troup was executive general manager at CommInsure at a time when Koh was agitating for change in the treatment of claims.

His message to Troup was sharp and could leave little doubt about the way CommInsure was treating the very ill: "You cannot fake an organ failure. Nor is assessment on this contractual basis, expressly or impliedly so, in my opinion fair or reasonable."

It was October 2014 and Koh's tone reflects his building frustration.

Commonwealth Bank of Australia chief executive Ian Narev.

Commonwealth Bank of Australia chief executive Ian Narev.Credit: James Alcock

The spur for this particular warning was an email from a claims assessor complaining about one of his doctors recommending the approval a claim for total and permanent disability for a customer suffering kidney failure. The assessor was arguing that the doctor had gone beyond the brief she had been given.

"I'm worried that by taking the stance that this member is TPD, we are opening the gates for insureds/trustees to argue that members may be TPD, even when they are awaiting or undergoing curative treatment," the claims manager wrote to Koh.

Koh had been asked to step in and rectify the situation – by over-riding the original medical officer's opinion that the claimant was TPD.

In Koh's mind it typified the worsening behaviour of the claims managers, who were increasingly cherry picking doctors, bullying doctors to change their opinions and changing medical opinions.

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In the weeks since Fairfax Media and Four Corners exposed evidence of unethical practices, questions stemming from the scandal have mounted and new details have emerged.

Fairfax Media has received hundreds of emails from aggrieved Commonwealth and life insurance customers, many with compelling and disturbing stories of their treatment.

CommInsure has provided little detail on what exactly it is doing to tackle the systemic and cultural issues at the heart of practices exposed by Fairfax Media and Four Corners and that were reported to the board by Koh.

CommInsure, and the Commonwealth Bank's chief executive Ian Narev, have apologised for the treatment of individuals highlighted in the investigation – such as terminally-ill father Evan Pashalis, and former CommInsure staffer and multiple sclerosis sufferer Helen Polydoropoulos.

I have nothing to hide and if this comes up for debate in the court of public opinion, I'll let them decide.

Dr Ben Koh

It has also pledged to update its definitions for heart attacks and rheumatoid arthritis (while only backdating them by two years), appoint a yet-to-be-named independent expert to oversee a claims review program and has added a decision-making layer to the claims process – creating a panel, chaired by Troup, to consider "complex" cases.

Troup at the top

Troup was not long into her time in the job when Koh wrote to her, having taken the top executive role at CommInsure in April 2014, after senior roles at ING, now OnePath. She also joined the CommInsure board and had recently restructured the business.

Within the medical team, there were fears that this restructure had given more power to claims managers and underwriters, at the expense of the medicos meant to independently judge the condition of customers.

Not long after he wrote to Troup, Koh contacted CommInsure's independent directors with his concerns about the restructure and conflicts of interest.

He spoke with the independent chairman, Geoff Austin.

He later reported the organ failure cases, and other questionable conduct, to an intermediary put in place by the CommInsure board, highlighting ethical, cultural and potentially legal failings within the life insurance business.

Less than a year later, in August 2015, Koh was sacked – by Troup.

Before he left, he was kept in the dark about what would change, if anything, within CommInsure, as a result of his reports to the board.

Fairfax Media requested interviews to discuss CommInsure's response but they declined. Detailed questions were then submitted to Commonwealth Bank only some of which were answered.

Review commissioned

CommInsure did say that the board commissioned an independent review on the back of the warnings of Koh before he was sacked.

But the bank refuses to say who carried out this review, what its terms of reference were and what it concluded.

"CommInsure has taken a range of actions including the benchmarking of product features, targeted review of customer claims, governance changes to enhance structural independence and additional training for claims staff, including customer empathy and professional protocols," the bank said in a statement.

It did not respond to questions on who, if anyone, had been disciplined or held accountable for the failures – and if so, how.

CBA's legal counsel, David Cohen, revealed little about this review when he wrote to Koh in March 2016 – in a reply to a letter Koh had sent Narev last August.

"The review involved a well-regarded independent expert … the review has been completed and the [board] has considered [its] outcomes, together with management recommendations," Cohen said. "I can assure you the [board] has taken the issues you raised seriously and is holding management to account for the implementation of those recommendations."

After receiving the questions from Fairfax Media, a CommInsure spokesman said the board was now "revisiting its actions to ensure the concerns raised in the media are fully investigated.

"If more steps are needed, more will be done".

Public clarity needed

Pat McConnell, an honorary fellow at Macquarie University's Applied Finance Centre – who spent 30 years advising banks and insurance companies on risk and regulation – says the CBA board should publish the report's terms of references and conclusions, "and describe the steps taken to address 'holding management to account'.

"If the Commbank board refuses to do this, the [Australian Securities and Investments Commission] should publish a summary of the conclusions as regards the firm's governance processes," he says.

It may soon have to reveal more information, possibly before a Senate hearing.

The Minister for Financial Services, Kelly O'Dwyer, has called on the corporate regulator, ASIC, to investigate the allegations raised by Koh and the Fairfax Media-Four Corners investigation.

The allegations are also on the radar of the Australian Prudential Regulation Authority, the agency responsible for making sure banks and insurers' businesses – including their compliance, risk appetite, record-keeping and culture – are up to scratch.

APRA chairman Wayne Byers recently told a parliamentary committee that his agency did not deal face-to-face with customer complaints.

"But we do look at these issues seriously and with a great deal of interest for what they tell us about an organisation and the way it operates, and the incentives that people have within organisations that might drive them to do things which are not appropriate," he said.

Incentives to perform

Inappropriate incentives, of course, lay at the heart of another recent scandal that engulfed the Commonwealth Bank – its financial planning scandal, in which thousands of customers were given inappropriate advice by commission-hungry financial advisers.

Nest-eggs were destroyed. Lives were ruined. A compensation scheme, launched in July 2014 after the scandal was exposed by Fairfax Media, has so far paid $2 million to 157 customers.

In his letter to Ian Narev, written after his sacking, Koh hearkened back to these events in a warning.

"This is a systemic issue that appears to not just be confined to the non-insurance division of Wealth Management but also in CommInsure," he wrote.

"It is not just bad apples but an entrenched way of doing business. I would welcome the day a Royal Commission exposes all this and for the public to make up their own mind."

Independent enough

The chairman of the CommInsure board, who Koh spoke with, is Geoff Austin, a former CBA executive who worked at the bank in the early 2000s.

He joined the CommInsure board in 2013, meaning enough time had passed for him to qualify as an independent director under the APRA standards.

One of his first roles at CBA was running its advice arm, as head of financial planning and advice services.

Austin was put in charge of this operation in 2001, just as CBA was cranking up a plan to leverage its enormous customer base and branch network to maximise returns from its $8 billion takeover of Colonial Mutual in 2000.

CBA planned to flog Colonial investment and life insurance products through its bank branches and its army of advisers – including those at Commonwealth Financial Planning and its subsidiary Financial Wisdom – who were incentivised with commission payments, overseas junkets and marketing allowances.

A slide show from the time sets out the strategy, including the focus on promoting the young CommInsure brand after it swallowed the newly-rebranded Colonial life insurance business.

ASIC concerns

Austin ran the advice division, with responsibility for compliance, training and licensing, until July 2003, when he was transferred to another part of the bank.

ASIC already had concerns about the advice industry at that time. In early 2003, it conducted surveys into financial advice offered by various institutions. CBA advisers were singled out as some of the most problematic.

More than a decade later, CBA's financial advice compensation scheme is still dealing with a number of cases from this period. They include that of Kevin Day, who died just on a year ago.

For Day, things turned sour in 2003, when a massive margin loan sold to him by a CBA financial planner went very wrong.

He would spend years fighting the bank to get back his life savings, which were decimated by "negligent" advice from Rollo Sherriff, a now-notorious Financial Wisdom planner who worked out of Cairns.

Day reported Sherriff to the bank's complaints department. He then sent letters to the regulator, key politicians and the Financial Planning Association, asking for an investigation, as well as his retirement savings restored.

Bank fight

His cries for help fell on deaf ears so he hired a lawyer, alleging negligence as well as unexplained transactions, such as a loan advance of $100,000, the unauthorised transfer of funds into CBA products and a lack of disclosure of all relevant fees and commissions.

The bank fought back. By June 2008, five years after complaining about Sherriff, Day had had enough and settled for a pittance.

In 2014 Day tried again, when the bank was forced to open up a compensation scheme after Fairfax Media's investigation. He got a bit more money just before he died, but it was still a fraction of what was lost.

CBA financial planning whistleblower Jeff Morris spoke to Day a couple of hours before he died. It was a painful call.

"His daughter rang me and said Kevin wanted to say a few last words. He was distraught that the bank had fought him so hard. He couldn't believe they could be so dishonest, that after everything they had put him through they still couldn't pay up," he said.

Meanwhile, after blowing the life savings of Day and other clients, Sherriff continued at Financial Wisdom. His accreditation was withdrawn by the Financial Planning Association in October 2004 due to "inappropriate advice", but was restored five months later.

In 2010, CBA filed several breach reports about him to ASIC. He declared bankruptcy the same year.

Austin did not respond to an invitation to comment about his time running the advice business, the Rollo Sherriff matter or Sherriff's former clients.

Managing money

Within the bank, CommInsure sits in the same division as the financial planning operations – Wealth Management.

But the CommInsure board is required to operate independently.

"It is incumbent upon APRA to ensure that the insurance arm is, in fact, being overseen by a truly independent board and that undue pressure for profits from Commbank Wealth Management does not impact sound insurance practice," McConnell says.

Laws prohibit the victimisation of whistleblowers who make disclosures to life insurance boards.

Commonwealth Bank insists Koh was not sacked because he was a whistleblower. It says he was sacked because he repeatedly breached the IT policy by sending work emails to his home.

As chief medical officer some of these files contained medical and financial information. This was discovered when they investigated him, after his disclosures to the board.

Koh says when he joined the company he was given permission from his then-boss to send the files due to IT system problems at CommInsure.

He has filed a writ for wrongful dismissal in the Victorian County Court, stating that he informed Austin and other directors of "improper state of affairs" in November 2014 – and that, two months later, CommInsure began to investigate him, alleging he forwarded confidential information to his personal email account.

Brutal feedback

Illustration: Simon Bosch.

Illustration: Simon Bosch.

Illustration: Simon Bosch

This was about the same time that Dr Koh received a feedback presentation on his team.

The document, obtained by Fairfax Media, and verified by Koh, was sent to the medical team in January 2015. It contained brutally-worded criticisms from claim assessors about the medical officers, and demands on how they should conduct themselves in the future.

They included: "stop providing opinions where not required/requested", stop giving length opinions (keep it short and to the point), stop providing opinions beyond what is asked/scope of medical opinion, stop using medical and legal jargon, stop pushing back on informal conversations, and to start allowing case managers to pick the doctor they want to refer to."

In a response to a question about whether this was appropriate, a spokesman said CommInsure expected all employees to "speak up" if they see behaviour that is fraudulent, illegal or "inconsistent with our values".

"We provide a number of different safeguards to ensure that there are no negative consequences for raising concerns."

Power with claims managers

Click to view interactive

Claims managers hold considerable, formal power. They ultimately determine the time it takes to assess a claim, the way a customer is treated while the claim is being assessed, and have the say on whether a claim will be paid.

This is, in part, why the medical officers – along with their professional ethical obligations – are so important. One of their roles is to weed out insurance fraudsters, but they also serve as a check to the business-focused claims managers.

This is why the "feedback" relating to Koh and his team was so devastating.

This presentation was delivered to the doctors after Koh had already warned Austin and the CommInsure board about his ethical and governance concerns.

Five months later Koh was gone. He was offered a payout in return for signing a gag order, preventing him from speaking out. He refused.

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"I have nothing to hide and if this comes up for debate in the court of public opinion, I'll let them decide," he says.

Do you know more? Email Adele Ferguson at aferguson@fairfaxmedia.com.au.

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