Direct Line driving up its premiums to battle inflation
DIRECT LINE is increasing motor insurance prices for new customers by as much as 15pc to tackle the rising cost of claims.
The insurer said premiums would have to rise after the number of breakdown claims jumped in response to supply chain disruption and more people buying second-hand cars. The move comes after Direct Line issued a profit warning in July as soaring inflation heaped pressure on its earnings.
Gross written premiums – a key measure of performance – fell by 2pc to £1.5bn for the six months to the end of June, while pre-tax profits fell by nearly a third to £178m compared with the same period a year earlier.
The financial update caused shares in Direct Line to fall more than 1pc in afternoon trading to 204.6p. The insurer’s stock has slumped by 28pc since the start of the year.
Penny James, the chief executive, said the company was facing “uniquely complex motor market conditions” from “significant regulatory changes, heightened claims inflation and macroeconomic uncertainty”. However, she said the longer-term fundamentals of the business remained strong.
Ms James said: “Through pricing action, steps taken in our garage repair network and through deployment of enhanced pricing capability, we have now returned to writing at our target margins based on latest claims assumptions.”
The pressure is a sharp contrast to the commercial environment for insurers during the pandemic when the number of claims fell because fewer people were travelling owing to the government’s lockdown measures.
The recent challenges have also spread across the market with rival car insurer Sabre warning of a hit to its performance in July because of the rising cost of car parts and repairs.
Chief executive Geoff Carter said at the time that the increase in the cost of claims could hit 12pc, “unprecedented” levels of inflation he said he had not seen since his school days in the 1980s.
Sabre claimed a car which would normally be in a garage for two to three days was now taking two to three weeks before it was fully repaired.