Freedom Insurance profit down before royal commission grilling

Freedom Insurance CEO Keith Cohen has warned that “life insurance will have a challenging time in the short term”

Freedom Insurance chief executive of Keith Cohen has warned that “life insurance will have a challenging time in the short term” as the company prepares for a grilling at the banking royal commission.

Freedom Insurance’s shares plunged to a record low after it was called, along with Commonwealth Bank, AMP, IAG, Suncorp and five other firms, to appear at public hearings on the insurance sector from early next month. Freedom specialises in selling life and funeral insurance.

Mr Cohen’s comments came as Freedom posted a 6 per cent fall in annual profit to $13.2 million, but the company is bracing for further damage as the royal commission targets conflicted remuneration and bonuses.

Most of Freedom Insurance’s revenue comes from trailing commissions and upfront commissions. Revenue increased 20 per cent to $64.1 million, but costs increased on the back of its St Andrew’s acquisition.

The Australian Securities & Investments Commission is cracking down on the “direct” life insurance model, which involves policies being sold through outbound call centres and television advertising.

Freedom Insurance, which bought St Andrew’s Insurance from Bank of Queensland earlier in the year, is still yet to gain regulatory approval for the $65m purchase, which is the company’s ticket to an insurance licence from the Australian Prudential Regulation Authority. APRA is yet to endorse the takeover.

34¢ Freedom Insurance Group last traded down 0.5¢ q

Currently, Freedom Insurance sells policies underwritten by Swiss Re.

The royal commission recently shredded the reputation of rival Sydney-based outbound life insurer Select AFSL. The insurer, which runs a telemarketing centre in Chatswood in Sydney, had been revealed to be using high-pressure sales tactics to push Let’s Insure-branded funeral plans on to Aboriginal customers. Counsel assisting, Rowena Orr QC, recommended that Select AFSL be found to have engaged in unconscionable conduct in selling its policies in breach of three sections of the ASIC Act. Select AFSL has been forced to stop selling life insurance altogether, after St Andrew’s, which was formerly owned by Bank of Queensland, ended its underwriting relationship with the company.

Former employees of Freedom Insurance have lauded the “endless” bonuses on offer to sales staff, according to reviews left by former workers on the “Glass Door” website.

Mr Cohen yesterday told analysts the life insurance industry was “facing unprecedented regulatory scrutiny and likely short-term reputational damage”.

“We are committed to addressing any issues that arise from this process. Life insurance will have a challenging time in the short term,” Mr Cohen said.

Freedom Insurance chief operating officer Craig Orton said the company was continuing “to explore any unfavourable feedback with a view to improving the customer experience further”.

“With respect to our product offering and business in general, online reviews show we are well regarded by customers relative to our primary competitors in the direct life space,” Mr Orton said.

ASIC is preparing to release a report on the direct life insurance market, which is known to have poor claims results and higher ­denial rates than the rest of the sector.