Insurer made £10m from referral fees in H1 2012

Henry Englehardt Admiral

Admiral chief executive Henry Engelhardt has insisted that the pending ban on referral fees will hurt rivals more than his company.

His comments come as Admiral announced falling ancillary income - a mainstay of its profit - in the first half of the year.

Engelhardt told journalists this morning following the release of Admiral’s first-half results that any move that put greater emphasis on deriving profits from motor underwriting rather than other sources would benefit Admiral because “we are in a much better place”.

“We are arguably the fittest in a game of survival of the fittest,” Engelhardt said.

He denied legislation against ancillary income such as referral fees would be “a killer” for Admiral. “It is actually the opposite,” he stated. “ It is a big killer much more for our competitors who derive a much greater proportion of their profits through those income sources.”

Admiral revealed that it makes £7 per vehicle from referral fees. The current vehicle count of 3.02 million suggests Admiral is making £21m a year from the fees. The company confirmed that it had made around £10m from referral fees in the first half, which accounted for between 5% and 6% of profits and between 2% and 3% of revenue.

Referral fees for  personal accident cases will be banned from April 2013.

Admiral routinely produces better underwriting results than its peers despite its almost exclusive focus on motor business, which has produced losses for many companies in recent years. Admiral’s UK motor combined ratio for the first half of 2012 was 88.9%, compared with a UK personal motor combined ratio of 99.5% for RSA and 96% at Aviva.  

However, equity analysts have criticised the firm’s heavy focus on ancillary income, which includes referral fees, and argued that the referral fee ban would be a blow for the company.

Commenting on the first-half results, Shore Capital analyst Eamonn Flanagan noted that the profit contribution from ancillary products had “ground to a halt”, which he contended was particularly worrying from stock a valuation perspective.

Ancillary income in the first half dipped to £90.1m (H1 2011: £90.7m) and its contribution to UK motor profit before tax  fell to 49% (H1 2011: 54%).

The drop was caused in part  by Admiral no longer earning  revenue from the sale of legal protection policies from 1 April this year.