An investigation by the corporate watchdog is putting pressure on the Australian Prudential Regulation Authority to block a takeover of Bank of Queensland’s life insurance division, St Andrew’s, by royal commission case study Freedom Insurance.
Freedom Insurance shares plunged 24 per cent yesterday, following a 10 per cent tumble earlier in the week, after the royal commission called up the company for its public hearings into the scandal-ridden life insurance sector, and after the Australia Securities & Investments Commission put the group’s business model in serious doubt.
ASIC’s sector-wide review of the “direct” life insurance business ended with a pledge that if companies did not shut down their outbound sales centres, the regulator would force them to do so. Most of Freedom Insurance’s revenue comes from trailing commissions and upfront commissions from outbound telemarketers selling life insurance policies. Read Next
Freedom Insurance, which bought St Andrew’s Insurance from Bank of Queensland earlier in the year, is yet to gain regulatory approval for the $65 million purchase. The deal is the company’s ticket to an insurance licence from APRA.
Freedom must pass the requirements laid out by the Financial Sector Shareholdings Act before they would be given permission to purchase an APRA regulated company. APRA’s performance at the royal commission earlier this month revealed that it had a collaborative approach to regulating companies.
Freedom Insurance is currently under investigation by ASIC over its high-pressure sales tactics
Freedom Insurance 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.
Despite being published at about 7am yesterday, Freedom Insurance did not respond to the ASIC report until it issued an ASX statement at 2.25pm.
“We can’t comment any further on supervisory action we might be undertaking,” an ASX spokesman said.
Freedom Insurance said it would act on the findings and recommendations of ASIC’s review.
“Freedom will consider ASIC’s report in detail and evaluate any actions the company may take to ensure that its sales practices and product design continue to meet the expectations of its customers and the regulator,” the company added.
Former employees of Freedom Insurance have lauded the “endless” bonuses on offer to sales staff, according to reviews left on the Glass Door website.
FIG Price at posting:
24.0¢ Sentiment: None Disclosure: Held
