TUESDAY’S SUMMARY: Allianz under attack over compliance

Allianz endured another day of painful questioning at the Hayne royal commission.

Counsel Assisting, Rowena Orr, put the insurer’s Chief Risk Officer Lori Callahan on the spot over the series of website errors outlined during yesterday’s evidence.

Breaches were not reported to ASIC and Ms Orr painted a picture of a company where compliance was not given the attention or resources required.

Perhaps the most disturbing revelation was Allianz’s refusal to accept two independent reports that criticised its compliance function.

An EY report that panned Allianz’s compliance framework was changed after meetings that were “not civil”, Ms Orr said.

The draft report submitted in September last year found that compliance personnel were under-resourced and that the compliance function was reactive and lacked transparency.

Ms Orr referred to communications that suggested a meeting between Allianz and EY “was not civil”. She says that EY then agreed to produce another draft version of the report that gave Allianz an improved rating.

Allianz still was not happy, and a marked-up copy of the report was sent back with “extensive comments” added.

The feedback was “starting to wear down EY’s patience”, Ms Orr suggested.

A further version of the compliance report was sent through in late October, and the final report contained information provided by Allianz that was not proven, Ms Orr said.

She asked whether it would have been better to improve compliance rather than “pushing back on the findings of an external report”.

“An independent report should be an independent report,” Ms Callahan said, agreeing the Allianz approach to EY was not appropriate.

However, Ms Orr then highlighted another highly critical report submitted to Allianz by Deloitte in July this year.

Ms Orr said Deloitte found Allianz’s compliance function was significantly under-resourced and “has no formal or recognised authority”.

Ms Callahan telephoned Deloitte and asked them to withdraw the report, Ms Orr said..

“That was not my finest moment,” Ms Callahan admitted. She said she felt the report was highlighting things that had already been done.

At the end of Ms Callahan’s evidence she admitted Allianz ‘did not comply’ with prudential standards.

Noting that Allianz is obliged by the prudential regulator to have a designated compliance function that is adequately staffed, she added: “I want to put it to you that Allianz did not comply.”

“I would agree with that,” Ms Callahan said.

It has been a hurtful two days for Allianz, a company that has previously spoken with pride about its culture. It will be happy now to see the focus shift to somebody else.

Late in the day, IAG’s EGM Business Distribution and Group Executive Ben Bessell took the stand.

Counsel Assisting, Mark Costello, took him through the commissions and sales incentives offered to car dealerships by Swann Insurance, which is owned by IAG. Mr Bessell agreed with Mr Costello that Swann’s customers were the dealers, not consumers.

Mr Costello suggested the incentives led to inappropriate sales, and Mr Bessell agreed that this had happened on occasion.

Mr Bessell’s evidence will continue tomorrow from 9.30am, and so will our special insuranceNEWS.com.au blog.