Esure set to raise premiums after motor insurance profits fall 80%

http://www.theguardian.com/money/2015/aug/10/esure-sheilas-wheels-raise-premiums-motor-insurance-profits-fall

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Esure, owner of Sheilas’ Wheels and Go Compare, has said it is planning to raise premiums after a surge in small injury claims helped push half-year profits in its motor insurance underwriting business down by four-fifths.

The company said trading profit for that area of its business was down 80.7% to £3.3m as it was “impacted by claims inflation, in particular the market increase in the frequency of small personal injury claims”. Its shares dropped nearly 9% as the fall contributed to a 21% slide in underlying pre-tax profits for the first six months of the year to £46.5m.

Stuart Vann, Esure’s chief executive, said: “The claims environment in the motor market continues to deteriorate and as a consequence we will seek to implement further rate increases in the second half.”

Related: Go Compare founder to bank £44m after selling remaining stake to esure

Esure acknowledged that increasing premiums might cost it customers. The group has more than 1.4 million motor insurance policies and about 570,000 in home insurance.

Vann’s comments about increasing car premiums come after an AA report showed they had risen by 5.5% across the industry in the second quarter after years of decline. It also pointed to the issue of claims inflation – more frequent claims with higher damages.

Until this year, fierce competition between car insurers had kept premiums falling even though claims costs continued to rise, particularly for personal injuries such as whiplash. The number of injury claims reported has been increasing by about 10% a year since 2013, according to the AA.

Half-year profits for home insurance at Esure were up 31.5% to £7.1m compared with a period last year when it took a £2m hit following a period of bad weather.

Meanwhile, pre-tax profits at the price comparison website Go Compare were up 25.2% to £13.4m after Esure snapped up the 50% of the business it did not already own.

Vann said there were significant opportunities to at least double the website’s underlying earnings over five years. Eamonn Flanagan, an analyst at Shore Capital, said the half-year results for the group were worse than he had expected and that the rate increases were likely to affect business volumes.