Freedom Insurance sold six lines of insurance including funeral insurance, life cover, TPD, loan protection, accidental death and accidental injury via outbound phone calls however the company said it would stop selling all but two products yesterday.

Freedom's chief operating officer Craig Orton revealed that the significant change in the company's business model as well as the scrapping of commissions and non-monetary incentives in a series of amendments to his statement to the commission.

'Significant change'

Counsel assisting Rowena Orr, QC, said: "Freedom told the commission at three o'clock yesterday afternoon that it has decided to cease selling all of these products except funeral insurance and loan protection cover through outbound sales calls. Is that right? That's what you told us at three o'clock yesterday afternoon?" she asked.

"That's correct. That's correct," Mr Orton said.

ClearView's chief risk officer (left) conceded it was difficult to see how the model could be financially viable.

"That's a very significant change, isn't it, Mr Orton?" Ms Orr asked.

"It is a significant change," Mr Orton said.


Freedom will continue to use the outbound sales model - telephone marketing to consumers - to sell funeral insurance and loan protection – which deliver more than 85 per cent of Freedom's revenue.

Mr Orton revealed the changes were made in a discussion between himself, the chief marketing officer and the chief executive officer over the last week. He could not produce evidence of exactly when it occurred.

Baptist pastor Grant Stewart revealed in evidence on Tuesday that his son – who was born with Down syndrome – was no longer comfortable answering his phone. AAPIMAGE

Freedom told the ASX on September 6 it was conducting a strategic review of the business model following the ASIC review. Board minutes dated September 5 show the company had already made decisions to scrap commissions because they were leading to poor outcomes for customers

"Freedom recognises a link between its remuneration structures and the mis-selling to vulnerable customers," the board papers read.

'Cheap alternative'

Ms Orr argued a program of incentives for sales staff that included boat trips, Bali holidays and motor scooters as well as penalties that included paying for overheads, referred to as "seat time", contributed to poor outcomes for customers. Call centre operators were encouraged to "smash lives" or hit life and funeral insurance targets.

"My view is that any commission payable by sales agents has the potential to be conflicted. It doesn't matter how big or how small," Mr Orton said.


"Can you explain what you mean by that?" Ms Orr asked. David Rowe

The policies themselves also came under scrutiny. Freedom employees would often sell accidental death and accidental injury policies as a low-cost alternative to life insurance.

"Can you explain what you mean by that?" Ms Orr asked.

"It provides a cheap alternative but doesn't provide coverage for natural causes," Mr Orton said.

"Well, it's not a true alternative to life cover, is it?" Ms Orr asked.

"No. No, you're right," Mr Orton said.

"And that's because the circumstances in which you can claim on an accidental death policy and an accidental injury policy are much more limited than under a life insurance policy?" Ms Orr asked

"That's correct," Mr Orton confirmed.


List of exclusions

Freedom sold 21,709 accidental death policies in 2017. Only 10 policies were paid out. A report from ASIC found accidental death policies had the lowest claims ratio of all insurance types at 16.1 per cent or 16.1¢ paid out for every $1 collected in premiums.

Freedom's list of exclusions – or reasons for which it could refuse an accidental death – was lengthy. It included "self-inflicted injury, criminal activity, aerial activity, motorised sport, war or terrorism, alcohol or drugs, intentional act by carer, and specific occupational tasks".

Aerial activity was defined by the company as anything other than flying in a plane as a fare-paying passenger in a fixed-wing aircraft operated by an airline or charter company.

"It would exclude an injury sustained, for example, in a helicopter accident?" Ms Orr asked.

"By that definition, yes, yes," Mr Orton replied.