ASIC sues former Freedom Insurance director and consultant over sales incentive programs

The Australian Securities and Investment Commission (ASIC) has commenced civil penalty proceedings in the Federal Court against two individuals in relation to sales incentive programs offered by Freedom Insurance Pty Ltd.

The proceedings allege Keith Cohen, the former Managing Director of Freedom, and Robert Oayda, a former Quality Control manager, were involved in breaches of conflicted remuneration and other laws.

ASIC Deputy Chair Sarah Court said, “The impact of incentives when selling financial products has been a longstanding issue for ASIC. We are concerned that incentives may cause sales agents put their own need for sales and reward above the needs of their customers.”

ASIC has alleged that both Cohen and Oayda were involved in decisions that saw sales agents qualify for overseas holidays if they reached certain sales targets and a Vespa scooter if they made the most sales. ASIC is concerned that these incentives influenced the sales agents’ conduct and made driving the sale their focus, rather than customer needs.

The regulator alleged that between November 2017 and October 2018:

• Cohen was knowingly concerned in, or party to, breaches of the conflicted remuneration provisions by both Freedom Insurance and Insurance Network Services Australia Pty Ltd (in liquidation) (INSA) involving two separate trips to Bali and a Vespa scooter, and Oayda was also knowingly concerned in, or party to, Freedom Insurance’s breaches;
• Cohen and Oayda were knowingly concerned in, or party to, breaches by Freedom Insurance of its licensee obligations arising from its breaches of the conflicted remuneration provisions; and
• Cohen breached his director’s duties by exposing Freedom Insurance and INSA to a foreseeable risk of harm in relation to such conflicted remuneration.

The alleged conduct relates to the marketing and selling by Freedom Insurance of insurance products issued by Swiss Re Life and Health Australia Limited, including final expenses cover (a type of life cover), accidental death cover and accidental injury cover.

The regulator is seeking declarations, civil penalties, injunctions and disqualification orders against Cohen, and declarations and injunctions against Oayda. The proceedings are to be listed for case management on a date to be determined by the Court. Freedom Insurance was a case study during round 6 of the Financial Services Royal Commission (Volume 2 – pages 302 to 317). ASIC commenced an investigation into Freedom Insurance prior to the final recommendations of the Royal Commission. And the Freedom Group companies were placed into external administration on 13 February 2020.

Cohen was a director of Freedom Insurance, a director of INSA, and a Responsible Manager on Freedom Insurance’s Australian financial services licence. Oayda was engaged by INSA as a consultant to deliver services to INSA and Freedom Insurance.