Capping credit hire will hurt insurers revenue

Insurers’ ancillary income earned from credit hire will take a hit, warns Shore Capital analyst Eamonn Flanagan.

Commenting on the cap on replacement vehicles proposed in today’s Competition and Market Authority (CMA) report, Flanagan said: “This will hit the credit hire element of ancillary income for each of the quoted insurers.”

He said: “In our view, anything which puts grit in to the process for the insurers will reduce penetration levels and conversion rates in respect of sales of ancillary products for the quoted players.”

He recommended selling shares in Esure, Direct Line Group and Admiral, citing the regulatory fog and soft market as reasons for steering clear of shares in motor insurance companies.

“These provisional remedies will clearly have a negative impact on the ability of insurers and third parties to take chunks out of the value chain surrounding a motor accident, which should ultimately result in lower claims costs and lower premiums,” Flanagan said.

“As a result, we see little in this to provide respite to an industry which is already suffering from significant premium rate reductions. In addition, the focus on ancillary income, be it in the form of credit hire referral fees or revenue from the sale of add-on products remain.”