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Will fewer drivers hurt the Admiral share price?

It has been interesting during lockdown to see how various businesses react to the crisis. While many firms face financial difficulties, some companies have seemingly put the consumer first – somewhat in the spirit of “we are all in this together”. Looking at the Admiral (LSE: ADM) share price, this policy seems to be working so far.

Last week, the UK insurer said it would be refunding £110m of premiums to drivers, due to the fact they are driving far less during lockdown (as well as there being fewer drivers on the road in general). Past the obvious fact that this seems fair, it is perhaps a savvy move from a business point of view as well.

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Customer loyalty

Though I am perhaps a sceptic at heart, I do often think a combination of loyalty, a tendency to remember certain events, and a hint of laziness can mean acts such as this one will keep customers using Admiral. When it comes time for renewals, many customers will remember this act and use it as an excuse not to bother shopping around.

Loyalty then, is perhaps the true goal. Indeed Cristina Nestares, head of UK insurance at the company said “We want to give the money we would have used to pay these claims back to our loyal customers in this difficult time

Looking at the Admiral share price over the lockdown period, perhaps surprisingly it has held pretty firm. Of course before this news there was no reason to think less driving would translate to lower profits for an insurer – cars still need cover even when they are not on the roads as much.

The move has seemingly already bought some investor loyalty. Today the insurer said it will be postponing its special dividend, though it still intends to pay out its final dividend as planned. As I write this, the Admiral share price is still about 0.4% higher on the day.

Compared to rivals such as Aviva (LSE: AV), this is very strong. That company saw its share price drop after it suspended its dividend, and currently stands over 40% lower than its pre-lockdown levels.

The Admiral share price going forward

With this loyalty in mind, how do things look for Admiral going forward? In early February, the company signalled that profits for 2019 should be higher than expected. By currently maintaining its end of year dividend, it should also keep those investors looking at income.

From the coronavirus perspective, it seems highly unlikely that this temporary hiatus from the roads will leave drivers abandoning their cars en-masse. Car insurance will still be needed.

That said, the sector still faces potential price controls from the UK government, with many in the industry already giving profit warnings and saying premiums are not keeping up with inflation.

All told I don’t think the Admiral share price is cheap enough to buy yet, but it certainly seems safe enough to hold on to if you own some. A dip could be worth looking out for, particular if we can see the lay of the road after the lockdown ends.

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Karl has no position in any of the shares mentioned  The Motley Fool UK has recommended Admiral Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.