Car insurer Admiral warns of price hikes over changes to personal injury claims
Car insurer Admiral has warned over price hikes as annual profits tumbled by a quarter after the Government's "eccentric" decision to change the way personal injury claims are calculated.
The Cardiff-based group said it had already taken "pre-emptive" action to increase prices last December with "more to follow" as it looks to recoup a £150 million hit following a cut to the so-called Ogden discount rate calculation.
It became the latest car insurer to reveal the impact of changes to the Ogden rate, with underlying pre-tax profits dropping by 25% to £284.3 million in 2016.
Admiral took most of the £150 million estimated impact in the results, but said there would be around another £65 million to be reflected in the coming years.
Shares in the insurance sector plunged last week after Lord Chancellor Liz Truss put forward changes to the discount rate calculation, which is expected to increase payments given to victims of life-changing injuries through medical negligence, car crashes and other incidents.
Ms Truss said, from March 20, the rate would be cut from 2.5% to minus 0.75%, but the Government is now consulting on the move.
David Stevens, group chief executive of Admiral, blasted it as an "eccentric government decision".
Chairman Alastair Lyons added: "We strongly support the Association of British Insurer's call for a fundamental review of the basis on which the Ogden rate is set in order to ensure that the relevant compensation awards are set appropriately and welcome the intent of the Lord Chancellor and the Chancellor of the Exchequer to implement this review expeditiously."
The group said, despite the profit blow, it would hand out its annual shares windfall to staff with almost 9,000 employees each receiving free shares worth a total of £3,600.
Admiral , which also owns price comparison website Confused.com, said increases in the cost of cover should also mean profits are largely protected once the Ogden rate change comes into effect.
It has already pushed through car insurance price rises over 2016, which helped send total written premiums up 17% to £1.86 billion.
Average written car insurance premiums rose by around 4% in 2016.
But the group said prices leapt 14% higher across the wider market, according to its Confused.com/Willis Towers Watson Car Insurance Price Index.
Its Confused.com business swung out of the red on an underlying basis, with profits of £3 million against losses of £7 million in 2015.
On a bottom line basis, Confused.com narrowed losses to £3 million from £16 million in 2015.
Admiral currently has a 13% share of the UK car insurance market, with 3.65 million customers.
Analysts at Peel Hunt said Admiral's motor policy business was better than expected - up 11% last year, adding almost another 350,000 customers - with the company showing "resilient growth despite the competitive environment".
Admiral also saw strong growth in its home insurance division, with the number of homes covered rising by 51% to 469,000, helping profits in the division more than double to £2.7 million.
Co-founder and former chief executive Henry Engelhardt stepped down from the group last May after nearly 25 years at the helm, handing over the reins to Mr Stevens, his co-founder and previous chief operating officer.