Fall in Direct Line Group premium income offset by fewer claims

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It is on track to deliver a combined operating ration between 93% and 95%

Direct Line Group has reported lower quarterly premiums because of dropping car sales throughout the ongoing Covid-19 pandemic.

According to a trading update for Q3 2020 ended September, the motor insurer revealed that although premiums have been strained, it has benefited from a sharp fall in claims due to people driving less during lockdown.

Its chief executive Penny James said: “We are encouraged by our trading performance in Q3 where we saw a return to strong growth in Green Flag and Commercial, and some improvement in Motor and Home own brands, particularly in the price comparison website channel as customer shopping activity started to recover.

“This progress is testament to the flexibility and commitment of our people who have been successfully navigating through the Covid-19 pandemic, delivering good operational progress, providing extra support for our customers and helping local communities.”

However, there is no change to the group’s net estimate in terms of the impact of Covid-19 on business interruption and travel claims – these are £10m and £25m respectively.

Damage severity

It said it is on track to deliver a combined operating ratio target range of 93% to 95% in 2020 that will be “slightly below” its average.

Direct Line said that damage severity in its motor insurance class was above its long-term average because the repair industry factors in pandemic differences such as longer repair times and additional cleaning requirements.

Although this was offset by claims that were still below levels prior to the pandemic.

Meanwhile, the insurer’s gross written premiums for Q3 dipped 0.8% to £851.5m – with its biggest segment being motor insurance at a 2.3% drop.

And it estimates weather event claims due to flooding in Q3 to be around £7m in across home insurance. Although in commercial weather event claims in the same quarter were offset my “favourable development” in claims during the first half.

In total weather event claims for the group are estimated to be £38m in 2020 up until the end of Q3 in comparison with an annual budget of £64m.

Reviewing pricing

Speaking about the FCA pricing practices report, James continued: “Whilst still early in the consultation period, the FCA report into pricing practices has proposed significant changes to the way the market operates. As we outlined at our Capital Markets Day in 2019, we have been actively reviewing renewal prices over recent years.”

Direct Line’s shares took a sharp fall following the FCA’s dual pricing ban.

“There will be uncertainty to navigate during the transition, however we believe that our market-leading brands and outstanding customer service, combined with our model of operating across multiple channels, are fundamental strengths meaning that we are well placed to deliver success in the future,” she said