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From bad to worse at Freedom Insurance

Freedom Insurance Group has warned that it may face a liquidity shortfall next year in the absence of receipts of commissions from new business sales. The company said in a statement that it was considering options to address the potential shortfall.

The board said it remained satisfied that the company was solvent.

The company has also abandoned an agreement to buy St Andrew’s Insurance from Bank of Queensland. The company had been pursuing equity funding for the acquisition but has abandoned the project. Termination of the purchase agreement was mutually agreed.

Freedom released details of a strategic review, which concluded that it had no “commercially viable option” to recommence sales of its life insurance products.

The board said it would “continue to assess alternative business models that may arise, which would enhance shareholder value and deliver enhanced customer outcomes.”

In October, Freedom suspended new business sales of all direct insurance products, after evidence at the Financial Services Royal Commission that the company, which made most of its money from funeral insurance, had a record of making it very difficult for customers to cancel their cover. Staff were paid bonuses based on the number of policies they “saved”.

The company’s move was also in response to the release of an ASIC review of the direct life insurance market, which found that the market was marked by aggressive sales techniques, inadequate information, high cancellation rates and poor claims outcomes.

ASIC said people were being sold “products they don’t want, can’t afford or don’t perform as they expected.” The regulator said it would restrict outbound sales of life and funeral insurance.

Freedom parted company with its chief executive and chief financial officer and called in Deloitte to conduct a review.

In addition, the company reported that ASIC had commenced an investigation into past misconduct, which was highlighted during the Royal Commission hearings. “Following communication from ASIC, the Board is of the view that the company is required to make remediation payments in relation to affected customers.”