Freedom Insurance Group Ltd (ASX: FIG) announced it will suspend sales of all new direct insurance products.
Freedom Insurance was one of Australia’s larger direct insurance businesses.
It recently appeared in the Royal Commission and was accused of selling policies for accidental death and injury policies as alternatives to life insurance policies, which didn’t cover as much. The Commissioner also heard of a case where someone with Down Syndrome was “bulldozed” into getting insurance.
Suspension Of Insurance Sales:
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After a strategic review of the business options in the face of ASIC recommendations, the Freedom Board decided to: immediately suspend new business sales of all direct insurance products, continue to service and renew its existing policies, and restructure the business to align with reduced activities.
Freedom Insurance plans to cut its workforce to around 90 employees. CEO Keith Cohen and CFO Jenny Andrews will be leaving the company and Craig Orton has become the new CEO.
The reduction of staff will reduce annual expenditure by over $15 million, although this will come at a restructuring cost of $4.8 million.
Freedom Insurance will no longer be generating upfront commissions, but its existing 350,000 customers will be unaffected. The company said that at 30 June 2018 its value of trailing commissions from policies was $74 million, but this is offset by a provision of commissions clawback of $16.3 million.
Ethical Equities’ Analyst Claude Walker wrote in a blog post that “there is the potential for a class action against Freedom Insurance” and that the remaining value of the trailing commissions “will be impaired if Freedom is compelled by the Royal Commission to make it easier for customers to terminate their policies.”
The Freedom Insurance share price has fallen 75% since 27 August 2018, according to Google Finance.
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