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UK motor insurer Direct Line to hike premiums after profit hit
Global Banking & Finance Review®
Company
By Carolyn Cohn
LONDON (Reuters) -British motor insurer Direct Line is raising premiums after higher claims hit its first-half profits, as the company feels the effects of soaring prices for everything from used cars to spare parts.
Chief Executive Penny James said on Tuesday the company saw claims inflation at around 10% for the year, and “our rate increases … need to reflect that”.
Direct Line already lowered its profitability forecast last month, saying the motor insurance market saw “significant” levels of claims inflation in the first half.
James pointed in particular to supply chain problems following the COVID-19 pandemic and the Ukraine conflict, which have made it harder to find parts and added to repair times.
Premium rates rose by 15% in the first half, Direct Line said in a trading statement.
UK car insurance premiums have risen by 6% in the last 12 months, according to a survey from Willis Towers Watson and confused.com.
Direct Line was also hurt by economic uncertainty and by regulatory changes brought in this year that prevent insurers from charging a so-called “loyalty penalty” to longstanding customers, it said.
Pretax profit fell 32% to 178 million pounds ($218 million), though this was above 155 million pounds forecast in a company-supplied poll of analysts.
Adjusted gross written premium rose 2.1% to 1.52 billion pounds.
The insurer said it would pay an interim dividend of 7.6 pence per share, unchanged from a year ago, and James said the insurer was “confident in the sustainability of our regular dividends”.
Direct Line’s shares slipped 0.2% at 0723 GMT, but outperformed a 0.8% fall in the FTSE mid-cap index.
Smaller motor insurer Sabre has seen its share price nearly halve as profits were also hit by claims inflation.
($1 = 0.8173 pounds)
(Reporting by Carolyn CohnEditing by Kirsten Donovan and Mark Potter)
Claims inflation refers to the increase in the cost of claims made by policyholders, often due to rising prices for goods and services related to repairs and replacements.
Insurance premiums are the amounts paid by policyholders to an insurance company in exchange for coverage against potential losses or damages.
Pretax profit is the income a company earns before taxes are deducted, providing insight into its profitability before tax obligations.
A dividend is a portion of a company's earnings distributed to shareholders, typically paid in cash or additional shares.
The UK motor insurance market encompasses all insurance policies that cover vehicles against damages, theft, and liability, influenced by various economic factors.
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