Motor industry in tatters?

The decision today by the Office of Fair Trading to refer the private motor insurance market to the Competition Commission is a big blow to the industry’s reputation.

Motor insurance’s reputation has taken a big hit in recent years from the premium hikes that have hit young drivers hard.

This latest referral, which could last up to two years, will hang over the industry like a dark cloud.

Interestingly, insurers overwhelmingly called for the referral whereas credit hire firms were against it.

It’s almost as if insurers need an outside organisation to sort out their issues.

In essence, insurers have admitted defeat in being able to control the wild beast that is the credit hire industry.

The respectable credit hire bosses, and there are many, want the ABI to sort the issue out.

They are paying the price for the behaviour of some of their overly aggressive rivals.

Overall, today’s decision won’t surprise many people within the industry.

They’ve been resigned to the fact that the regulator will ultimately be needed to clean up the problems, as they simply can’t sort it out themselves. And that is a sad testament to the state of the industry.

Will ancillary income be hit by the probe?

There’s talk that Admiral will get burnt by this referal. The thing about Admiral, however, is that it has multiple income revenues, and only a small proportion of that will be affected by the probe. It is in no worse position than its rivals.

The company is also very good at innovating, meaning it can make up for lost income.

You could see Admiral, with its motivated staff, doing well in home or travel insurance when it finally decides to take the plunge, as it surely must. It seems likely that this probe will do little more than shake its share price a bit.

It’s also noticeable that Admiral, despite its big premium volume, performs far better than its rivals on FSA, released yesterday, and FOS customer complaints. That’s a great achievement by the staff and management. It also says that this is not a business that needs the attention of the regulator, unlike many of its rivals.

Admiral has proved time and time again that it is a robust business model. It comes under such pressure because its share price is so highly rated on a multiple of earnings due to its great success at growing quickly. But compared to its rivals in the insurance industry, the company is a winner. It should come through this regulatory probe without too much bother.