Item 3 · Selling
The ban on unsolicited sales
Since 5 October 2021, a financial product such as insurance generally may not be offered to a retail client during, or because of, a call, visit or other live conversation unless the person agreed to it beforehand in the way the law sets out; some offers are excepted, such as an insurer offering to reinstate a policy that lapsed in the last 30 days. The rule is usually called the hawking prohibition, and breaking it generally gives the buyer a right to hand the product back and have the premiums refunded.
Not legal or financial advice. ASIC’s own guidance is Regulatory Guide 38, and Moneysmart explains door-to-door selling for First Nations readers on its door-to-door sales page.
Why the rule exists
The current prohibition came from recommendations of the Financial Services Royal Commission and sits in sections 992A and 992AA of the Corporations Act. ASIC’s stated aim is to let people decide how they are contacted and which products they are offered, because offers made out of the blue often contribute to people buying products that do not meet their needs.
Life insurance sold directly to the public had been part of that story. When ASIC published its guidance in 2021, it pointed back to its 2018 review of unsolicited life insurance sales calls, in which 40% of consumers felt under pressure to buy, and to its finding that outbound phone sales were linked to pressure selling, lapsed policies and declined claims. In 2019 ASIC had already used a legislative instrument to ban unsolicited sales of direct life insurance and consumer credit insurance.
Funeral expenses cover is caught too. Since 1 April 2020, ASIC says, a business offering a funeral expenses facility that is a financial product generally needs an Australian financial services licence and must meet the obligations licensees carry, the anti-hawking provisions among them.
Three questions about a sales contact
ASIC’s guide breaks the rule into parts. Read together, they come down to three questions.
Was it a live conversation?
Unsolicited contact means a phone call, a face-to-face meeting, or any other real-time exchange that works like a conversation. ASIC’s guide counts instant messages and chat-bots too. A letter or email that is not a live exchange does not breach the rule by itself, and advertising generally falls outside it, though any later call still has to meet the rule.
Had the person agreed to it beforehand?
The consent has to come before the contact, has to be positive, voluntary and clear, and has to be something a reasonable person would understand as agreement. The seller cannot draw the consent out during the call itself, for example with leading questions. A seller can rely on consent for six weeks after it is given, or for a longer period the person agrees to, up to 12 weeks, where the product reasonably needs more than six weeks to allow for a medical examination, and consent can be withdrawn at any time.
Was the product within what was agreed?
The contact has to be about the products the person agreed to hear about, or ones reasonably within that agreement, and by the method they named if they named one. If it becomes clear during a call that the person does not remember agreeing, or expected to talk about something else, ASIC expects the seller to stop.
The breach happens at the moment of the offer. It is no defence that the person was given time to think, or that nothing was sold in the end. The rule binds the issuer and also anyone selling for it, such as an agent or representative.
When a person starts the conversation
If someone calls an insurer themselves, the fact that they made the call is taken to show they understood what kind of contact it was. If, partway through, they raise another product entirely on their own initiative, and their agreement is positive, voluntary and clear, ASIC’s view is that the seller may then make offers about it. The rule also does not apply to an offer made while giving personal advice by someone who must act in the client’s best interests.
If the rule was broken
A breach is a criminal offence of strict liability (section 992A(9) of the Corporations Act 2001). Schedule 3 to the Act sets the penalty at six months’ imprisonment, and sections 1311B and 1311C turn that into a maximum of six months in prison, a fine of 60 penalty units, or both, for an individual, and a fine of 600 penalty units for a company. These are the figures ASIC gives in RG 38. For the person who bought the product, the more useful part is the right of return.
- The policy is issued
The clock for the right of return starts from the issue or sale of the product.
- The cooling-off period runs
Where a statutory cooling-off period applies, the ordinary cooling-off right comes first (see Item 5).
- One more month
The right of return lasts until one month after the statutory cooling-off period ends. Where there is no statutory cooling-off period, the window is one month and 14 days from the date of issue or sale.
- The refund
For insurance, ASIC says the refund is all of the premiums paid. The policy ends from the time it is returned, without penalty.
ASIC adds that a person contacting an insurer to return a product is likely to be making a complaint, which brings in the insurer’s complaints obligations, and that those obligations still apply if the request comes after the return period has passed. A licensee’s duty to put things right may also reach past a simple refund. The complaint route is in Item 6.
The industry code on pressure
Insurers that subscribe to the Life Insurance Code of Practice add their own promises on top of the law. When someone contacts a subscribing insurer to buy, and the sale happens by phone or in person, the Code says its sales rules will commit it, among other things, to giving the person time to ask questions, to holding off selling the policy or taking payment details if they ask for time to think, and to knowing when to stop selling. It defines pressure selling to include using the cooling-off period to close a sale before someone has really decided, and not ending a sale after a clear no.
The Code also names a cultural practice, “Gratuitous Concurrence”, and says subscribing insurers will take extra care with Aboriginal and Torres Strait Islander people about funeral and other life insurance, so that any consent is genuine.
Moneysmart’s page for First Nations readers says not to feel pressured into funeral cover, including by people who come to the house, and to take time to think it over. It notes that people selling financial products must hold an Australian financial services licence, which can be checked on ASIC’s Professional Registers Search, and gives ASIC’s Indigenous Help Line on 1300 365 957 (ASIC’s own Youpla page gives the same number for its Indigenous Outreach Program).