Insurers feel the chill after claims surge at Direct Line

Firm axes divi as cold snap bill hits £90m

DIRECT Line sent shock waves through the insurance industry as it axed its dividend following a surge in claims during last month’s deep freeze.

In an update that sent shares across the sector tumbling, the FTSE 250 firm said it has so far dealt with 3,000 households and businesses with burst water pipes, water tanks and other damage due to subzero temperatures.

It expects the bill to total £90m – taking ‘bad weather claims’ for the whole of 2022 to £140m once the cold snap at the start of last year and the heatwave over the summer are taken into account.

That is far higher than Direct Line’s previous forecast of £73m.

With higher motor insurance claims also expected due to the rising price of cars and parts, and a surge in claims due to road accidents in the icy weather, bosses scrapped the final dividend.

The update stunned the City and shares fell 23.5pc – wiping £763m off the value of the company. FTSE 100 rivals Admiral and Aviva were also on the slide, with the three companies shedding £1.46bn of value.

Insisting the board ‘recognises the importance of the dividend to our shareholders’, Direct Line chief executive Penny James said: ‘It’s just so frustrating if I’m honest because it’s been a challenging fourth quarter.’

While investors will be counting the cost of lower dividend payments and the slump in shares, customers have also been hit as insurers jack up the price of general insurance policies. Money Mail yesterday revealed that households are facing increases of 30pc or more as their home and motor policies renew. Rising inflation and supply- chain snarlups have increased the cost of covering house and car repairs, leading to price hikes as insurers bolster their finances.

Russ Mould, investment director AJ Bell, said: ‘The insurance industry is going from bad to worse. After suffering from inflationary pressures which made it more expensive to cover the costs of repairing vehicles that had been in an accident, insurers are now having to contend with a winter of discontent.

‘Questions are going to be asked about the strength of the company’s balance sheet and whether it has enough capital.

‘The company admits its capital coverage is now at the lower end of its risk appetite, so might we see a big fundraise soon?

‘Saving money by not paying a dividend is one way to preserve cash yet the thousands of pensioners owning the stock for income won’t be happy. Direct Line has historically been a generous dividend payer and a lot of people have got used to a growing stream of cash rewards.’

The update from Direct Line comes after a turbulent two years in which its shares have almost halved in value since early 2021.

Peel Hunt said the cut in dividend was more than anticipated and said the update would be ‘another knock in the confidence of the UK motor insurers’ in a challenging environment.