Direct Line has taken a hit from rising inflation and newly introduced rules stopping car and home insurers from charging existing customers more than new consumers.
The company behind the Churchill and Green Flag brands reported a 2.4 per cent fall in premiums to £734.3million in the first quarter.
It said part of the decline was down to it being unable to hike prices for loyal customers after the ban on so-called ‘price walking’ was introduced in January by the financial watchdog.
But it also warned that revenues had been it by its decision not to hike premiums to reflect the higher cost of claims to avoid losing customers.
Rising used car prices and supply chain pressures have been driving up claim costs for insurers
Rising used car prices and supply chain pressures have been driving up claim costs for insurers in recent months, and Direct Line said this was still the case.
‘Motor claims severity inflation remains high with continued elevated used car prices, which impact total loss and theft claims, and supply chain disruption further increasing repair cycle times across the quarter,’ the company said.
Premiums at its home insurance division fell the most, by almost 10 per cent to £126.4million, while motor premiums dipped 5.4 per cent.
Direct Line’s commercial division partially offset falls in the other divisions, as it saw a 11.6 per cent increase in premiums and solid growth in the SME market.
Direct Line shares tumbled 6 per cent to 240.30p. The stock is down by around 17 per cent compared to a year ago.
Overall, the company said results were broadly in line with expectations, with adverse weather incidents remaining within budget.
Chief executive, Penny James, said: ‘In an important quarter for motor and home markets, prices adjusted for the introduction of the FCA Pricing Practices review, but we believe have not fully reflected claims inflation.
‘In this context, we achieved a lot, pushing forward key elements of the strategy, increasing customer retention in motor and home and delivering double-digit growth in commercial.
‘Trading was broadly in line with our expectations.
‘Looking forward, we are focused on driving benefits from our new motor platform and continue to deliver significant new pricing capability, including machine learning models, with more to come through the rest of the year.’
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The group is investing in machine learning to improve its pricing capability, and aims to reach its previously estimated combined operating ratio target of 93% to 95% in 2022.’
