Admiral has become a stock market darling, despite almost all of its profits being drawn from the UK motor insurance market, which has suffered heavy losses in recent years.
Jonathan Djanogly, a justice minister, said the current situation regarding referrals was “rotten” and action was needed to increase transparency and reduce costs.
According to Admiral’s 2010 full-year results, 52pc or £142.4m of its UK car insurance profits came from “ancillary” sales. Analysts estimate that a significant proportion of these were from so-called “acceptance fees”, the payments insurers receive for putting customers in contact with lawyers in order to seek damages.
This trend has been widely criticised by industry leaders, politicians and consumers, who have faced a rising cost on car insurance premiums. One industry expert warned that Admiral’s model was “not sustainable”, adding that the stock market seemed “oblivious” about the issue.
In response, a spokesman for Admiral said: “When one of our customers calls us for help with a claim that was not their fault, we refer them on to a retained accident management company who help sort out their claim, but only if they give us their permission. If they don’t want to be passed through to our accident management company we do not put them through. If the claim needs to be referred to a lawyer then the accident management company will pay us a referral fee.”
Last week, Axa became the first insurance company operating in the UK to refuse so-called “acceptance fees” from personal injury lawyers to help eliminate fraud across the industry. The company said it took the decision to combat the UK’s growing “compensation culture”, which has increased the cost of motor policies.
The move came after The Sunday Telegraph revealed how unwanted texts, promoting compensation claims for accidents or financial mis-selling, are now at the centre of a growing industry estimated to be worth at least £175m.
Jack Straw, the former justice secretary, has also blamed motor insurance companies for pushing up the cost of premiums. The Labour MP for Blackburn said the cost of personal injury claims had doubled to £14bn in 10 years.
Admiral’s reliance on “ancillary sales” has been flagged up by analysts in recent months. Kevin Ryan, an analyst at Investec, has described Admiral’s business model as a “complex balancing act”. Eamonn Flanagan at Shore Capital added: “The group makes no reference (as far as we can note) to the sharp rise in bodily injury claims that has so afflicted the rest of the UK personal motor insurance market. Indeed, the apparent lack of impact in Admiral’s combined ratio of the near epidemic in bodily injury claims in the UK, despite a 10pc market share, has left many in the insurance industry somewhat incredulous over the group’s seeming ability to ‘walk on water’.”
The Association of British Insurers estimates that UK consumers now pay £2.7m each day to the legal profession through motor insurance premiums.
The industry body has called for a complete ban on the fees. Nick Starling, ABI’s director of general insurance and health, said: “It is not right that people take cash for tipping off lawyers about accidents which fuel personal injury claims, driving up costs for all motorists. They must be banned as part of a whole package of civil litigation costs reform which includes looking at solicitors’ fixed fees and hourly rates.
“Unless action is taken, the compensation culture will become more prevalent and the cost of insurance will continue to rise. We are calling on the Government to crack down on ‘no win, no fee’ claims as part of an overhaul of the whole personal injury compensation system.”
Source : Telegraph
