Insurance firms lose £1.7bn in value after Direct Line reveals cold snap increased claims

BRITAIN’S biggest insurance companies lost £1.7bn of their value yesterday after Direct Line reported that the winter cold snap had sent claims soaring.

Direct Line, a home and car insurer, told investors that the company’s annual dividend would be shelved this year, causing its share price to drop by a quarter, losing over £700m in value.

The company said it expects weatherrelated claims of £140m for 2022, almost double the expected £73m.

Share prices of UK insurers tumbled after Direct Line’s statement, as investors feared the cold weather claims could hit the whole industry.

Admiral Group’s share price shed 7pc, losing £500m, while Aviva sank 3pc, falling by £400m.

Direct Line’s home insurance claims were higher than expected after the extended period of sub-zero temperatures in December damaged house pipes and water tanks.

The insurer said it had received more than 3,000 home damage claims over the cold period, including freezing water tanks causing water to “cascade through the property”, causing damage in excess of £100,000. This was “unusual” in a normal year, the company said, noting that nearly half of claims were in Scotland and the North West of England.

Car crashes also occurred more frequently on the icy roads, and Direct Line’s motor underwriting business experienced a sharp increase in the number of claims it had to pay out in the final quarter of 2022. Dec 12, when most of the country was covered in a blanket of snow, was the busiest day of 2022 for car insurance claims, according to insurer NFU Mutual.

Direct Line expects that more frequent claims coupled with the effects of car price inflation will drive their motor insurance into a steep loss for the year, despite increasing motor insurance premiums by more than 25pc. It calculates that the combined cost of claims and operating expenses will add up to 102pc to 103pc of premium income for 2022. Penny James, chief executive of Direct Line, said: “We have seen a significant increase in claims as a result of the prolonged period of severe cold weather in December and I am proud of the way that we have supported our customers during this period.

“We have taken actions to respond swiftly to further inflation in motor claims and will continue to navigate market volatility as it arises.”