On Tuesday morning, FTSE 100 insurer Admiral Group PLC (LON:ADM) said its former chief executive and founder, Henry Engelhardt, and his wife Diane would invest US$25mln for a 17% stake in its US subsidiary, comparison site Compare.com.
Not to be confused (.com) with UK comparison site Gocompare.com (LON:GOCO) or Meerkat-related Comparethemarket.com, Compare.com is Admiral’s attempt to bring the comparison site model to the US market.
So far, the results have been less than encouraging, with Admiral expecting to record a full year loss connected to compare.com of between US$8mln and US$13mln, while the Engelhert’s investment was made at a 15% discount to previous funding rounds for the site.
Separately, Admiral will provide Compare with up to US$10mln by way of a convertible loan.
However, despite what seems like grim reading, Admiral’s shares have moved little, up 0.3% in lunchtime trading at 2,019p, suggesting that investors view the “challenging trading conditions” as teething problems in the US rather than a more ominous sign, with some analysts highlighting the specific challenge of working through the legal framework of 50 different states.
Comparison sites still best consumer option says analyst
In addition to the muted market reaction, analyst see little to suggest that Admiral’s troubles with compare.com are a symptom of any issues with the price comparison market.
Malcolm Morgan, an analyst at City broker Peel Hunt, said that price comparison sites still represent “the best way for the consumer to re-broke their motor insurance policy”, given their internet-backed range of choice and speed.
Morgan adds that the maturity of the motor insurance market and the penetration of price comparison sites into it is not necessarily an issue.
He cites Hastings Insurance Group PLC (LON:HSTG) as an example of the increased use of comparison sites in policy purchases after it reported in October that live customer policies had increased 4% to 2.70mln in the nine months to September 30 as gross written premiums jumped 3% to £738.5mln, although it also noted fierce competition in the sector.
Regulatory probe just as likely to be a benefit than detriment
Worries over the state of the insurance market were highlighted recently by an announcement that the City regulator, the Financial Conduct Authority (FCA), would be investigating pricing practices in the home and motor insurance sectors, citing the failure of several firms to have appropriate or clear pricing, governance, and controls.
However, Morgan says the FCA investigation is just as likely than not to encourage even more use of comparison sites.
“The [Competition and Markets Authority] has consistently seen price comparison sites as extremely beneficial for both competition and protecting the consumer,” he says, adding that the review is likely to reinforce the benefits of comparison and switching rather than discouraging it.
Morgan cites the energy market as an example of this occurring when the introduction of a cap on the standard variable tariff did not “choke off” robust demand for switching services.