Insurer confident of good results next year after early response to claims inflation 

Admiral has reported “modest growth” with the insurer’s main motor business seeing a slight rise in both premiums and customers.

David Stevens, group chief executive at Admiral, said the results were in line with expectations for the UK as a “disciplined insurer that has moved its rate alongside claims inflation.” This, he said, had subsequently reduced competitiveness.

He said it was a “very positive performance” considering the group had been responding earlier than its competitors to claims inflation.

“We are very pleased to be giving £1800 worth of shares to all our employees across the group in recognition of their contribution to this result, we do that every sixth months and it’s an important part of Admiral’s culture,” Stevens said.

It followed the insurer revealing that it had taken a £33m hit from the Ogden rate recalculation in its results this morning for the first half of 2019

Predicting cyclical benefits

Stevens explained: “The loss ratio for the current period if you exclude the impact of Ogden was a couple percentage points higher than it was in the first half last year. To me that just reflects the cyclicality of the market. 

“The prices have gone down over the course of 2018 in the market, you would expect that to mean higher loss ratios at this point but its really a cyclical thing.

“If you look back the history of the UK’s motor insurance market it tends to operate quite cyclically with periods of high profitability [of claims] and periods of high losses as appetites move backwards and forwards.

“Over the past couple of years up to the first half of 2018, we saw prices falling, so that led to results worsening and we have seen some reversal of that in 2019.

“But nonetheless we expected the loss ratios in the market for 2019 to be higher than those for 2018, reflecting the prices that were reducing in early 2018.”

Stevens added that in motor it is expecting cyclical benefits in 2020, with household insurance also rapidly growing.

Household insurance also benefited from benign weather this year as opposed to battling with the Beast from the East last year.

Claims inflation

Gerraint Jones, chief financial officer at Admiral, said the group has improved in getting the right balance between claims settlements, low administration, customer expectations and efficient service - more so than its competitors for a number of years.

“We try to price as accurately as possible to reflect the risk of the business, so over the years we have been able to offer car insurance prices to the right customers and avoid customers that are underpriced,” Jones said.

“The other [thing] which is greatly under appreciated is really expensive claims handling, it’s a real challenge for our claims department.”

Stevens said the market has started to move up in accordance with claims inflation, but that it needs to sustain the increases in accordance with the next couple of quarters.

Turning market

On whether or not the UK market is turning on motor rates, Jones said he believes it is.

He said: “It has to under the pressure of claims inflation. The big issue at the moment is third party inflation, garage repair inflation generally including salaries, and that’s only going to get worse since the 5% depreciation on Sterling versus the Euro.

“These prices cannot stay flat if claims inflation is barreling along.”

He explained this was due to Admiral having a large proportion of younger drivers who incur claims more frequently. But he reiterated the importance of having a “good claims department” that handles claims with sensitivity, with an appropriate outcome for the claimant.

Still a way to go

Profit growth for its European business hit €4m, up from €3m. But the international unit as a whole made a loss.

With the biggest part of the firm’s business being its European arm, Stevens said that its profitability grows alongside the size of the book. It has added over 200,000 new policy holders.

“All parts of the business grew in the first half; the UK part of the business was broadly flat and up slightly. Most of parts of the group grew more strongly – our loans business was double in size versus six months ago, our comparison segment was nearly 10% bigger,” Jones added.

Stevens said that despite its US arm making a loss, which offset its European profit, that it is working at improving the US business. But he said there is still a long way to go.