Claims farmers undergoing a revival after adapting to the legal reforms, says Esure boss Stuart Vann
Esure, Direct Line and Admiral all suffered a tough day on the stock market yesterday as investors took fright at brewing troubles in the motor insurance industry.
Esure’s shares dropped 9% to 207p yesterday amid concerns that claims inflation is beginning to bite.
Esure’s motor combined ratio increased by 2.5 percentage points to 92.4% (2013: 89.9%).
Investors, having digested Esure’s results, are now concerned that claims inflation is catching up with motor insurers.
Direct Lines shares fell 2.3% to 332p and Admiral suffered a 4.4% decline to 1,440p.
As well as injury claims inflation being spurred on by more people taking to the roads amid an improving economy and falling petrol prices, Esure boss Stuart Vann said claims farming is undergoing a revival.
Vann said: “Lawyers saw their income levels curtailed, but have become more efficient, especially with consolidation in the industry.
“Tactics have adapted and we are seeing more things like psychiatric claims and previously straightforward cases now moving into litigation.”
Analysts at Deutsche Bank remained doubtful that premium rises would offset claims inflation.
“Though management puts forward arguments as to why the pricing cycle should turn, it also states that pricing in Q1 2015 has actually given up some of the gains of Q4” the German bank said.
Group chairman Peter Wood remained upbeat, however.
“Esure’s management team continue to make the right decisions to position the business for further profitable growth when market conditions permit,” he said.