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Insurer Admiral sinks 2% on concerns about further squeeze on profits

Admiral shares have been sinking for several months now, as the insurance group and owner of price comparison site faces increased pressure on fees.

The Association of British Insurers recently succeeded in getting the Ministry of Justice to announce it would seek to ban referral fees from lawyers to insurers. Admiral gets around 6% of its UK motor insurance profit from this source, and now the ABI is believed to be pushing to reduce lawyers’ fees in all personal injury cases. Investec analysts said this could have a knock on effect for third party claims managers, and as a consequence, has repeated its sell advice on Admiral with an 843p price target. Analyst Kevin Ryan said:

The ABI is now keen to reduce the minimum fee lawyers can earn in personal injury cases which is currently set at £1,500, we believe. If minimum fees were trimmed it would make many small cases less interesting for the army of “no win, no fee” personal injury lawyers. This would probably have a domino effect on the other non insurance company related agencies currently inflating a typical motor claim, such as the credit hire and accident management companies. The cycle of referrals between all these operators sees each charge or accept a fee.

While lowering the overall cost of UK motor claims would be good for all motor insurers, including Admiral, we suspect it exploits these third party organisations in the UK motor claims process more effectively than some of its competitors. We see a steady squeeze on Admiral’s superior profits continuing and reiterate our sell recommendation.

Admiral shares are currently 28p lower at £12.35. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds