Engelhardt: waiting for final shape of referral fee ban

Admiral Insurance is “considering its options” over becoming an alternative business structure (ABS), chief executive Henry Engelhardt confirmed yesterday.

Announcing a 13% rise in profits in 2011 to £299m, Mr Engelhardt indicated that the company is waiting to see the final shape of the ban on referral fees in personal injury before making a decision about whether to establish an in-house legal function to deal with claims.

Admiral has previously refused to comment on speculation that it might look to an ABS structure as a way to make up for the loss of referral fee income.

In the presentation of the 2011 results to analysts, chief operating officer David Stevens said that Admiral, which insures 3.36m vehicles, receives

around £7 per vehicle in personal injury referral fees, with a further £5-6 in referral fees arising from credit hire, which are separately under threat because of an Office of Fair Trading investigation into the market. Last August, the company said referral fees accounted for about 5.5% of its UK profits in total.

Mr Stevens said the ban would mean “some reduction in our revenue from referral fees”, but that he also expected to see an improvement in claims costs as some of the “dysfunctional elements” of the system were improved.

While the ban on referral fees will not be introduced until April 2013, Mr Stevens said it was possible that a reduction in RTA portal fees could happen before then, which might affect the company’s income even sooner.

Admiral said that a combination of benign weather, higher policy excesses, higher petrol prices and lower disposable income led to a fall in claims frequency of over 10% for the market as a whole in 2011. “This also tempered insurers’ appetite for price increases, and helped slow the relentless rise in the cost of bodily injury claims in the UK market.”