Freedom Insurance in overhaul after ASIC report

Life insurer Freedom is reviewing its business model after an ASIC clampdown, and ahead of a bank inquiry appearance.

Freedom Insurance is mainly an outbound “direct” insurer that sells life insurance and funeral insurance.

Under siege life insurer Freedom Insurance, which is yet to even take the stand at Kenneth Hayne’s royal commission, has flagged a dramatic overhaul of its business model following a damning report by financial regulators.

Freedom Insurance (FIG) shares have more than halved since early last week, when it was named as one of the case studies for the royal commission’s imminent round of hearings into the insurance sector.

Meanwhile, a report from the Australian Securities and Investments Commission has put the group’s business model in serious doubt after it told life insurance companies to shut down outbound sales centres or face legal action.

Freedom Insurance is mainly an outbound “direct” insurer that sells life insurance and funeral insurance, and derives the majority of its revenue from trailing commissions and upfront commissions, both of which are in the sights of the royal commission and regulators.

To compound its problems, a separate investigation by ASIC is also putting pressure on the Australian Prudential Regulation Authority to block Freedom’s $65 million takeover of Bank of Queensland’s life insurance division, St Andrew’s. The deal is the company’s ticket to an insurance licence from APRA.

In a brief statement released to the market today, Freedom said its board of directors was launching a “review of strategic options” for the company after the publication of ASIC’s report and “initial discussions with ASIC regarding that review”.

Freedom shares have crashed 50 per cent since late August, wiping out about $50 million in shareholder value.

Freedom shares dropped another 5 per cent in early trade today.

“Specifically, the board notes that a significant proportion of Freedom’s upfront commission revenue is derived from the sale of funeral insurance by the company’s direct sales team and that changes to a number of lead sources would be required to continue to meet the expectations of the regulator,” Freedom said.

“Consequently, in order to protect and maximise shareholder value, the board has commenced a broad based review which will consider matters including strategy, business structure, operating model, and internal practices and procedures.”

“No timetable has been set for the completion of the strategic review. In the meantime, Freedom continues to conduct its business and remains fully focused on best serving our customers’ needs.”

Freedom Insurance is currently under investigation by ASIC over its high-pressure sales tactics.

Sources familiar with ASIC’s investigation into Freedom told The Australian the company had been unwilling to give ground to the regulator’s demands.

Freedom must pass the requirements laid out by the Financial Sector Shareholdings Act before it can be given permission to purchase St Andrew’s, which is an APRA-regulated company.

Freedom sells policies that are underwritten by Swiss Re.

Freedom posted a 6 per cent fall in annual profit to $13.2m, but the company is bracing for further damage as the royal commission targets conflicted remuneration and bonuses.

Freedom Insurance chief executive Keith Cohen this week told analysts the life insurance industry was “facing unprecedented regulatory scrutiny and likely short-term reputational damage”, but did not indicate the St Andrew’s acquisition would fail to go ahead. Mr Cohen said the takeover may be delayed.