Higher premiums work wonders for insurer Admiral

By This Is Money
Updated: 11:34 EDT, 2 March 2011

Drivers paying higher premiums in 2010 meant record profits for insurer Admiral.

More expensive and cheerful: Admiral raised premiums and saw turnover rise 47% for the year

Having hiked prices it actually increased the number of vehicles it covers by 32% to 2.5m - because its deals remained cheaper than policies from rivals, it said.

Paying out less in claims than the previous year also boosted profitability.

The firm behind Diamond and elephant.co.uk saw turnover up 47% to £1.58bn for the year and pre-tax profits rose 23% to £266m.

But its price comparison website confused.com suffered its toughest year since launching a decade ago as its adverts flopped against the apparently ubiquitous promotions from Go Compare's opera singer, Compare The Market's meerkats and Moneysupermarket's campaign fronted by comedian Omid Djalili.

Confused's profits fell 34% to £16.9m in the year, although a new marketing campaign launched at the end of the year helped the site's share of the car insurance market to stabilise.

The car insurance industry has seen a large increase in premiums in 2010 after an increase in fraudulent cash-for-crash claims and as insurers move to increase profit margins, which were hammered in recent years after the introduction of price comparison websites. This has pushed consumers to shop around and Admiral 'took full advantage' by 'gobbling up market share' by raising rates by an average of 25%, which was less than the average in the market.

Chief executive Henry Engelhardt said trading conditions in the UK were more favourable than at any time since 2000.

However, shares dipped 57p (3.3%) this morning to 1,651p.

Chief operating officer David Stevens said: 'I'm told that in surfing slang, a 'double-up' occurs when two waves combine to create an extra powerful wave.

'In 2010, Admiral enjoyed a 'pumpin' double-up', a high adrenaline combination of continued rapid growth in sales via price comparison and a dramatic hike in car insurance prices.'

The record profits will trigger a pay-out of shares worth more than £12m for 3,500 eligible staff. Employees will receive up to £3,000 each - the maximum available under the scheme.

Cardiff-based Admiral, which also has offices in Swansea and Newport, and is one of Wales' biggest private employers, also benefited from the closure of some of its rivals. It took on an additional 800 staff in the year to help it cope with the influx of new business, bringing its employee numbers up to 4,250.

Admiral, which sponsors the Welsh rugby team, estimates it now has a 10% share of the car insurance market.

It said an EU ruling earlier this week banning insurance companies from differentiating between men and women when setting insurance premiums would be beneficial for the business as the market would increase prices for female drivers.