Freedom Insurance ignores regulator on funeral policies

Freedom Insurance is planning to snub the corporate regulator over the sale of its predatory funeral insurance policies.

Craig Orton outside the banking royal commission hearings in Melbourne yesterday. Picture: AAP

Freedom Insurance is planning to snub the corporate regulator by continuing to push sales of its predatory funeral insurance policies through its outbound call centres, a process that has been banned by the Australian Securities & Investments Commission under threat of legal action.

In a gruelling day of public hearings, Freedom chief operating officer Craig Orton defended his decision not to inform the royal commission of significant changes to the company’s businesses such as no longer selling some products through outbound calls until the eve of his appearance at Melbourne’s Federal Court yesterday.

Despite deciding to permanently carve off four out of the six policy types it sold at 3pm on Monday, it emerged that Freedom had not recorded the decision in any internal company documents.

Freedom made the snap decision to junk its sales of accidental death insurance, accidental injury insurance, trauma insurance and life insurance just hours before it faced brutal scrutiny from senior counsel assisting Rowena Orr QC.

However, the company decided to risk the ire of ASIC by continuing to sell funeral insurance policies despite the regulator’s instruction last week for companies to cease the sale of life insurance through outbound call centres under threat of legal action.

It will also continue to sell accidental death insurance policies through “inbound” calls, despite ASIC threatening to ban the product.

Mr Orton said funeral plans ­accounted for about 85 per cent of Freedom’s business.

Regulators have found funeral insurance has been found to be a most problematic product, often sold in tandem with high-pressure sales tactics with a litany of exclusions that render it largely useless.

The royal commission heard evidence yesterday from Melbourne Baptist minister Grant Stewart, who recounted how his son, a 26-year-old man with Down syndrome who had trouble dealing with numbers and needed assistance when making purchases, was sold a policy he didn’t want or need by Freedom.

“Ms Orr, it’s not a major component of our business — accidental death and accidental injury,” Mr Orton said.

“It was a decision that we could deal with without creating unnecessary paperwork … I don’t know why we would have to record that decision.”

Despite alerting shareholders to a surprise “strategic review” last week in the wake of ASIC’s damning report on the “direct” life insurance market, Freedom made no concurrent ASX announcement about its change of strategy.

A spokesman for Freedom said the changes were not considered “material” to its business.

The sharemarket regulator said the “ASX is continuing to monitor the situation and liaise with the company”.

Freedom shares have dropped 62 per cent in the past month as investors fretted about the grilling, but bounced 15.4 per cent to 15c during yesterday’s trade.

Last week Freedom reported a range of its legal breaches to corporate regulator ASIC in relation to five complaints, including the case of Mr Stewart’s son.

Freedom said its agents’ behaviour constituted a breach of the Corporations Act’s requirements to provide services efficiently, honestly and fairly, ensure representatives comply with financial services laws, and ensure representatives are adequately trained and competent to provide financial services.

The low value of the company’s policies also came under the spotlight, as customers could not claim on the accidental death cover in cases of criminal activity, terrorism, motorised sport or travelling by helicopter.

Few customers ever claimed on the policies — just 22 claims were made last year from 21,079 policies sold. Meanwhile, the company paid out claims as low as 14c in every dollar it brought in through revenue.

Freedom’s remuneration practices and lousy record of disciplining staff members were also probed yesterday.

The sales agent who sold the policy to Mr Stewart’s son had already been issued with a final warning for incorrect call logging and using Facebook at work, and had previously pressured customers to hand over their bank details.

But Freedom did not sack the agent. While he was warned to be careful about how he spoke to customers, his manager then pushed him to sell even more policies.

The week after the sale to Mr Stewart’s son, the agent sold ­another policy to a customer who explained they were on a disability pension and had mental health problems. Eventually the agent’s tenure was not renewed.

Freedom is in a final effort to attain an insurance licence so it can underwrite its life insurance policies. It has signed a deal to buy Bank of Queensland’s life business St Andrew’s for $65 million.