Esure warns drivers must pay more for insurance as profits plunge by 20%Comments Off on Esure warns drivers must pay more for insurance as profits plunge by 20%
Esure has warned that motorists’ premiums are set to soar as tumbling profits wiped nearly £40 million off founder Peter Wood’s stake.
Wood, who owns nearly 31% of the insurer, took the hit on his holding which was worth £341 million before it revealed a dividend cut and tumbling profits.
The group, created by industry veteran and Direct Line-founder Wood at the turn of the century, has struggled since listing on the London Stock Exchange more than two years ago. At its initial public offering, its shares were valued at 290p but today they fell to 235.1p after its latest results disappointed the City.
esure saw its underlying pre-tax profits fall 21.3% to £46.5 million on the back of “challenging market conditions”.
Its combined ratio, an industry calculation used to measure underwriting profitability, deteriorated by 4.9% to 95.8%. Figures below 100% effectively mean insurers are taking in more money than they are paying out in claims and costs.
Chief executive Stuart Vann said: “Lawyers and accident management firms have found ways to operate around the reforms introduced by the Government to curb whiplash claims. As I’ve said before, we’ve seen new tactics like psychiatric claims coming through.”
He added: “It’s also linked to the economic recovery and the cost of fuel falling, which meant that about three million more miles were driven on the roads in the last few months. This can only lead to more accidents.”
Vann said esure had increased rates by about 5% during the first half of the year, compared with an industry average of about 3.6%, and said they would rise further in the second half. Its interim dividend was cut from 5.1p to 4.2p.
As well as claims inflation, consumers are set to be hit by the Chancellor’s decision to increase the insurance premium tax from 6% to 9.5% in November, a move that experts called a “stealth tax” that will hit millions of ordinary households.
The news was not all bad for esure, which last year spent £95 million buying the remaining 50% of Gocompare it did not own. Pre-tax profits at the comparison site were up 25.2% to £13.4 million on revenues of £59.6 million.
Augustin Eden at Accendo Markets said: “Esure’s management will be wishing they added roadside assistance to their policy. The 10% hit to the share price was the result of many a shareholder holding on after last year’s forward guidance to see if things might be turned around, only to exit en masse.”