Cheap car insurance business going ‘downhill?’

Based on the rapidly plunging stock prices on Admiral, the chief executive of the discount car insurance provider may have been tempting fate when he recently said that the motor car insurance business in the UK was swiftly going ‘downhill.’

‘Downhill’ has turned out to be an apt description of Admiral’s share prices.  Since its recent June peak of £17.48, the insurer’s stock prices have tumbled more than 25 per cent.  This includes its latest 57p drop this past Friday, skidding to a halt at the price of £13.07 a share.

The latest reason for the insurer’s stock prices can be attributed to Jonathan Djanogly, the justice minister who has taken insurance providers to task for charging referral fees to law firms who run up car insurance rates by flooding the courts with car accident claims.  However, there were questions concerning Admiral’s practices even before the justice minister’s words.

The insurance company recently said that only 6 per cent of its insurance profits, or approximately £16 million, originated from referral fees.  These referral fees lead to massive payouts to personal injury lawyers, as every £1 paid out to a car accident victim from an insurer results in an additional 87p being pocketed by legal professionals, according to figures from the Association of British Insurers.

Admiral is especially vulnerable to Djanogly’s cricitism because of how quickly it receives information from its customers in regards to the occurrence of a crash due to its lack of diversification, experts say.  However, the use of ancillary sales on its insurance policies account for 56 per cent of its profits, which include collecting fees from car hire firms for alerting them to accidents, or even passing on business to rival insurance companies.

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