Embattled company Freedom Insurance has reached an in-principle deal to sell its policy administration business for $5 million.
- Freedom Insurance is planning to sell its businesses and shut down
- The banking royal commission strongly criticised the company for its unethical sales culture
- Its shares are worth almost nothing, and have been suspended by the ASX
Freedom Insurance came under intense criticism at the banking royal commission for its high-pressure sales tactics, which has effectively destroyed its business model.
In a statement to the ASX, the company indicated that the price would have been higher had it not been for “clawbacks” of trail commissions and “remediation of customers who may have suffered financial detriment”.
However, Freedom Insurance would not reveal who the buyer was due to “confidentiality reasons”.
The company also said there were plans to sell its Spectrum Wealth Management business, after which it “will have exited all its operating businesses”.
Furthermore, it said the funds would be used to “pay creditors, wind down its remaining operations and meet any financial regulatory obligations” — and if there are any “excess funds”, they would be returned to shareholders.
Unscrupulous sales culture
It was revealed at the inquiry that Freedom aggressively sold policies over the phone to those who did not require them — including accidental death cover to a young man with Down syndrome — with a damning recording of the sales call played during the hearing.
The royal commission heard that its sales culture was fuelled by incentives including trips to Bali, Vespa scooters and “cash money”.
The company also penalised its sales staff from the outset. Freedom Insurance’s call centre staff began in “debt” as far as their commissions were concerned, having to sell enough to cover the cost of their “seat”, among other expenses, before starting to earn commission on top of their base pay.
A former Freedom Insurance employee, Preston Timmins, told the ABC that the company’s massive commissions and “ultra-competitive” workplace culture encouraged unscrupulous sales tactics.
“I don’t know any other company that paid commission like Freedom did,” Mr Timmins said.
“You’d get paid your commission straight away so it didn’t matter if you set up a dodgy policy, you’re still going to get paid commission.
“I think that caused a problem as well because people realised that it doesn’t matter.”
Business model in ruins
The company’s share price plunged following these revelations, and it was forced to slash its workforce by more than half — from around 200 to 90 employees.
In addition, the 96 per cent plunge in Freedom’s share price — from 48 cents to 2 cents within a year — prompted it to commission a review by accounting firm Deloitte.
Deloitte’s concluded that the company had “no immediate commercially viable option to recommence sales of its life products” and was facing a liquidity crisis.
In November, Freedom’s chairman David Hancock resigned — followed shortly after by its chief executive Craig Orton (in January), who held the job for just three months and cited “personal reasons” for leaving.
More recently, in early-February, its shares were suspended from the stock exchange, after the company failed to deliver “material update” about its financial position.