City Analysts raised concerns about the value of Insurer Admirals stock last week as the Insurer reported the value of its ancillary income (primarily from Referral Fees) was down in the first half of 2012 compared to 2011. Although only a small drop year on year, Analysts felt that ancillary revenues had ground to a halt. Given that it still represents a 49% contribution to the motor insurer’s pre tax profits, fears about the impact of the Referral Fee Ban on next years results are very real.
Chief Executive Henry Englehardt felt that the Referral Fee Ban and its impact on Insurers ancillary income would hurt their rivals more than them as they routinely produce better underwriting results than their rivals. Admirals motor combined ratio for the first half of 2012 was 88.9%, compared to 99.5% for RSA.
If 49% of Admirals pre tax profits are seriously under threat next year and potentially more than that for other motor insurers, it would be interesting to hear from the Government about how significant falls in Insurer profits will lead to a reduction in motor premiums to the consumer?
It has always appeared to me to be a misconception that banning Referral Fees would drive down premiums, when we all know that Referral Fees are paid by solicitors out of existing fixed costs and not paid by Insurers directly.
The hope must be that the impact of the Ban is that claim volumes reduce, or that further measures will be taken to directly reduce claim costs, either by slashing fixed fees or increasing the small claims limit to take routine claims out of the system for insurers. Neither of which will benefit the innocent accident victim.
There will always be solutions for consumers however and Contingency Fees look like being the answer, but it will be a long time for claimants wake up and realize that the promise of potentially lower premiums means less damages.