AFCA and Zurich insurance

Dysfunction ... 

The Australian Financial Complaints Authority [AFCA] has been and is seemingly supporting Zurich insurance to avoid paying out lawful travel insurance claims.  Despite clear evidence.

 Zurich as a global company with teams of researchers, actuaries and analysts all mitigating risk through known events knew there was a pandemic looming circa 2019 [Covid19] which would [standard terms and conditions small print] negate any insurance claim yet they still took people’s money for travel insurance in that exact knowledge and knowing quite well that they would never have to pay out.  ‘A false pretence’.  Obtaining money under false pretences is at the very least fraudulent misrepresentation.

As long as AFCA fail to curb obvious dysfunctions there can and will be no change.  Following the Royal Commission’s scathing reports on companies such as Zurich and indeed the AFCA itself, it is indeed obvious that there is no change to past practices.

You may gather I am a little tense.

FINANCIAL ASSESSMENT BY BANKS

The dysfunction surrounding financial assessment of a proposed borrower is currently NOT about the borrower per say but about ‘productivity system intervention’ of the process designed to reduce staff costs for the FSP.  Indeed, to achieve ‘productivity’ targets everyone is lumped into categories and ‘assessed’ by software with little ability by people to press anything other than button a or b.  Quick?  Yes  / Simple? Yes / Accurate?  No.

As a matter of fact, it’s rubbish.

For example, I had occasion to shop around for a new home loan with a major bank and was unfortunately transferred to an idiot with no capacity for rational thought [indeed 3 times with 3 banks].  The monthly expenses that they insisted we incurred were a bank construct by a team of further idiots divested from reality [See AFR Sat 17/8/2019 report damning banks incompetence].  He / they just couldn’t understand the fact that we run a company with tax implications affecting our expenses.  He did not want to understand pre and post tax expenses.  A simple concept for anyone with half a brain but not for this bank employee making decisions between A and B. 

Dysfunctional for both the bank and the client!

To further this dysfunction it has been adjudged [same case – see comment on Caviar] that a client can actually self assess their expenses with some degree of alacrity.  ASIC lost the case to Westpac because the judge said that a prospective purchaser could adjust their spending habits to suit their commitments quite easily.  He virtually threw out the banks system of personal assessment.  Drive a Porsche before the house purchase but drive a VW after because there is only so much money. 

Simple.

There is no such thing as one size fits all and no such thing as a low level bank loans assessor with enough knowledge to make informed decisions.  Pushing button A or B doesn’t cut it.

They deal with a financial process over common sense.   So called productivity gone rampant.

The fix?  Training, training, training.  Front line bank staff need to understand finance.  Not just how to press button A or B. 

Assessment is all about risk factors.  Risks for the bank albeit now the impetus is shifting where bad advice and or bad process negatively affecting a client is also seen as a breach of fiduciary duty by the loan assessor / bank with responsibility subsumed by the bank and the application of pecuniary penalties. 

However, in effect, the banks risks are low because they have assurity through say a mortgage guarantee.  The problem for the banks is when the value of that guarantee slips below the outstanding loan as they would then be trading insolvent.

All the risk is on the client being able to make payments.  In the beginning by good financial analysis [not the aforementioned idiot] but no one can predict future events.  We all hope life is tickety boo and that we remain the person our dog thinks we are and we remain financially fluid.  This is where good planning comes in.  There must be a safeguard built in to protect people against short term issues.  A ‘nest egg’ by any other name.  The availability of money to pay loans in times of stress.

These are readily available with products such as offset accounts and interest only loans.  Both allow a financial hiatus in times of stress.  The trick for a lot of people is to keep the ‘de-stressing’ contingency balance without spending it. 

This is where the whole financial system needs to be adjusted and thought through.

We all want our own home and the Porsche returned but banks lending 95%+ disallows this life ambition as there is no risk contingency.  Really, only unemployment can cause headaches because without a contingency the Porsche is gone once again followed by the home.  Not good.

In an expanding market, the banks risks are low as is the overall financial position of the borrower because asset value increases will leave a balance to start again in the event of default.  Not good but not life threatening.  However unemployment in a contracting market will be devastating for the opposite reasons.

Therefore it is critical to factor in say a two year contingency balance to cover expenses in the case of unemployment et alia.  This is not available money to retrieve the Porsche but a controlled fund by the bank [not the idiot] to be made available with proven hardship.  A de-stressing fund.

Let’s assume the idiot gets retrained and becomes human and has to assess John & Mary's home loan application.  Financial alacrity is critical in understanding the expense patterns of the borrowers.  Understanding, not computer driven assumptive rubbish.

John sold the Porsche, structured his finances through a holding company and had the minimum deposit [the sacrificed Porsche].  The assessor analysed past credit card statements to ascertain willingness to repay debt, analysed EBIT to ascertain capacity to repay including pre and post tax expenses, and, sought a credit rating to ascertain past issues.  All keeping in mind that the client wants his house and will fight tooth and nail to make sure it’s kept in the family.  In the same way we drive a car just metres from death yet we have a self preservation instinct stopping us taking risks.

The big difference we need to initiate is the contingency balance concept where the borrower and the bank are assured of financial survival over say a two year default cycle through no fault of John or Betty.

It’s simple and it’s based on an assumption that values will always increase in the long term with short term fluctuations being irrelevant. 

The assessor has figured out that John & Mary pay their debts on time most of the time, have no ‘material’ credit defaults and have a steady income able to sustain a 95% mortgage with the Porsche sale as deposit.

The assessor has also calculated 2 years of expenses for John & Mary as a total figure which happens to come to 5% of the purchase price.

He then offers John & Mary a loan with an interest rate based on a REAL risk assessment [not by the idiot].  In this case they needed 90% leverage for which they received a nice lumpy cheque.  However, their debt was actually 95% with the 5% reinvested by the bank as an offset only to be accessed in a proven emergency such as unemployment.  All these 5% ‘s can reside in a special bank fund controlled by the bank with offsets automatically deducted for outstanding debt.  In this way the client is not tempted to spend it and they receive the benefit.

Simple.

Everyone wins!

This simple change almost eliminates risk for both the bank and the borrower as well as de-stressing everyone because everyone knows there is a ‘2 year nest egg’ of available money if …. !!

I urge the FSP’s to think this through by real breathing humans analysing risk, returns and the provision of a ‘forced’ safety buffer.  It’s a much a psychological comfort system as a financial safety net which would allow everyone to relax just a little bit more toward that tickety boo nirvana.

John & Mary have their house, a dog who believes they are close to God, two expensive kids and John has his Porsche back.  Life is good. 

Security through planning.

BANK - BIG 4

This is a story about the culture within a big 4 bank having an all pervasive internal ethos of – ‘right’. 

Thousands of employees believed they were right in everything they did because their chief executive told them so and defended their actions even though they often bent the law.  Indeed, this bank believed it was above the law because it was big and controlled money and they knew that money was everyone’s lifeblood.  It was superior and knew it was superior because everyone was always nice to them.

'You need our money' preached the bank and people queued up to borrow their dream.  After all, this was its job, to enable dreams.  Or so it said.

Their real job was to buy and sell money at a profit - perfectly commendable and natural for any big public company.  Indeed, most of us sell our time for a profit as do all the employees of the big public company / bank.

Unfortunately, some of the employees of the bank were sick the day ethics were handed out and they did things to advance their own career at the expense of reason and often ignored lawful requirements.  After all, it wasn’t their money or dreams and they knew they were right because their senior managers supported them and even encouraged them to act in bad faith.  Why be a nice guy when you can make lots of money by selling the dream then ripping the dream away – for a profit?

One day, one of the more ethically challenged employees decided, without cross checking, that a client had failed to pay a mortgage payment of circa $2,400 on his home months before.  If the employee had checked he would have realised that it was the bank that had made the blunder but fact checking was not in his mindset so he knee jerked into pious action in the absolute knowledge he could do nothing wrong - because he was a part of the bank and was always – right.

He rang the client with the opening statement, ‘We are going to sell your home in 30 days’.  Needless to say the client was somewhat taken aback, confused and indeed scared because the bank had aggressively threatened his dream without cause or reason or even humanity.

Still, this client had a life’s ethos in that it wasn’t the problem that was important it was how you dealt with it.  He knew he was outgunned by the bank that was constantly increasing its feverous attack and sought support from the Ombudsman.  This stopped the drivel and the insane fervour by the bank because the Ombudsman sported a protective umbrella shielding the client whilst they investigated as an independent authority.

That independent authority found the bank was wrong on all counts and awarded damages, compensation et alia to the much relieved client.  However, the issue now was that the client had lost a lot of money, time and opportunities as a direct result of actions by the bank but the Ombudsman was powerless to award anywhere near the quantum of loss.

The client was confused.  Would he accept the determination and accept losses whilst the bank rolled onto their next victim or would or even could he take it further.

At this point he discovered that the employee who had acted illegally threatening to sell his home had been promoted within the bank.   They were content within themselves that they were right and above the law as they had just promoted the dissident with not one syllable of apology to the client for their unlawful acts causing a great deal of stress and loss.

The client was determined to address the issue and pointed out to the bank they were found to have acted unlawfully by the Ombudsman and should compensate him for sustained losses.

The bank always seeing themselves as – right – refused.

So the client took them to VCAT where a higher level of jurisdiction could right some of the wrongs.

Now, the bank was incensed that a lowly client had the temerity to take them on even though they knew the client was the innocent and the somewhat aggrieved party.  After all, they were always right and strutted and pontificated that fact at every chance.  'How dare he!'

As a power play and not so subtle threat to the lone unrepresented client they engaged multiple lawyers, barristers and employees to defend their position in court.  Cost was irrelevant because it was shareholders money and they knew they were always right.

However, this client had done some homework and blocked every legal ‘trick’ the bank threw at him.  The client was not driven by career or personal gain but by mitigating personal loss.  Big difference and somewhat focus inducing.  At that time the bank was respected as a leader with enormous market power which did intimidate the client somewhat and that reality eventually forced a compromise.  How long could he hold out against dozens of lawyers and million dollar bank employees who were always right?   

After 5 years he settled because of a huge power imbalance and the self promoted invulnerability of the bank

That settlement saw the bank lose quite a few thousand dollars to the client but with a full cost to the bank of over a million dollars.  All for a alleged debt of $2,400.  But that’s alright because it’s only shareholders money. 

The client had mitigated some small part of his losses and the bank pontificated on as the all powerful trying to gag any public response by the client.  But now, enter the Royal Commission where Christian Porter – Attorney General said, “The royal commission has noted is that its standing powers enable it, in effect, to override the existence of any non-disclosure agreements.“  The same logically applies to settlements especially where and when there is a huge imbalance of market power forcing outcomes.

The big public company / bank now had nowhere to hide and its culture was for the first time on show for all to see, and it was found wanting.  It turned out that the bank was not superior, not right and that the chief executive had failed to act in good faith by presiding over a ‘toxic’ culture enabling many and various unlawful acts by various ethically challenged employees.  Indeed, in our client’s case the chief executive knew and sanctioned the events leading to a million dollar plus loss of shareholders money.

That revelation cost the jobs of the Chair and chief executive but still left our client in a loss situation.  A loss situation caused by and through a toxic culture supporting unlawful dysfunction.  Note that fault lies with the office as well as the incumbent executive. You can’t just change the executive and expect that all is now well.  The bank must take responsibility as an entity.

So, now our client has a determination by the Royal Commission which says the bank is indeed responsible for their ‘toxic culture’ causing dysfunction and client losses.  The bank is no longer invulnerable with pontificating executives self elevated above the law and past settlements can be revisited especially where bullying or coercion through size dominance was a factor in the signing.

Our client is now able to pursue losses caused by the bank and will.

The bank must decide if it will do the right thing and take responsibility for its actions or just continue on with an air of invincibility throwing and wasting even more shareholders funds at can’t win legal bills.

The story continues.

Justice Heydon

There are several things which define us as people and as an advanced society.  Of prime importance is the ability to stay a course of conviction through and by focussing on key points of change. On the contrary one of the things which define a low intelligence is swapping a focus on key change points for an attack on the person in the misguided belief that this is a rational behaviour in line with our adversarial Westminster system but is instead based on a desire to win at all costs.

Events over the last few days have shown quite clearly that the unions and the labour party have gravitated to the second group whilst Justice Heydon has exhibited the strength of character demanded of a High Court Justice by staying his course of conviction.

Union officials and labour politicians are devolved to absurdity in their criticism of Justice Heydon saying quite openly that he is guilty of bias seemingly just because his commission uncovered unlawful acts in the union.  David Oliver on Lateline disgraced himself and his union members by accusing a high court justice of what is essentially an unlawful act totally abhorrent to his former role as a Justice and current role as commissioner.

Both the unions and labour politicians have disgraced themselves and made Australia a laughing stock by personally attacking Justice Heydon over him finding against them and recommending several of their number for police intervention. 

They are bordering on personal defamation against a lawful commissioner and in my opinion should be firstly prosecuted and secondly removed of any political power by resigning their posts.  They are not attacking the issues but the commissioner.  This defines low intelligence and a misguided belief that attacking the person is a valid course of debate whereas attacking the issue is the only fair game in a democratic and respectful society.