Direct Line customers experienced higher prices in the first quarter
- A City analyst claimed that price rises had caused customers to leave the group
Direct Line Group saw its own brand car customer base fall in the first quarter as price rises drove some policy owners away but delivered double-digit premium growth.
In a trading update, the company said the average premium for car and home insurance was £599 for new customers and £515 for renewal customers, up from £478 and £373 at the same point a year ago.
Gross written premiums rose 15 percent to £706.8 million over the period. The enormous growth in the number of cars and homes offset a 1.8 percent decline in existing policy at group level to 9.3 million.
The group aims to achieve annual cost savings of at least £100 million by the end of 2025 and has recently hired a number of new managers in a bid to boost its fortunes.
Under pressure: Direct Line boss Adam Winslow wants to cut costs
Matt Britzman, equity analyst at Hargreaves Lansdown, said: ‘Direct Line’s massive price increases have continued throughout the first quarter.
‘If you take away the relatively new partnership with Motabilty, Direct Line sees 434,000 car customers walking out the door.
‘It’s not that hard to see why. The headline figure of a 35 percent increase in average premiums is somewhat flattered by the better rates offered to new customers. Anyone looking to renew their car insurance this quarter was hit with a 38 percent price increase.”
Total gross premium sales increased by 10.7 percent to £892.2 million, while sales of the premium car brands increased by 13.4 percent to £400.1 million.
The FTSE 250-listed company’s gross premium and associated fees for ongoing operations rose 15 percent to £706.8 million in the period, compared to £614.8 million in the first three months of 2023.
Direct Line said car volumes were lower, as expected, due to ‘continued repricing of the car book’, while policies for its Motability and Direct Line own brands showed ‘modest growth’.
Prices: Direct Line said the average premium for car and home insurance was £599 for new customers
Adam Winslow, CEO of Direct Line, said: ‘We have seen a positive start to trading in 2024, with double-digit gross written premium growth across our automotive, home and commercial businesses and overall growth of 15 per cent for current activities. Claims trends and vehicle margins continue to develop in line with our expectations.
The group’s former CEO, Penny James, announced last January that she would resign following a profit warning over an unexpected rise in weather-related claims. New boss Winslow unveiled a turnaround strategy in March.
Hargreaves’ Britzman added: ‘There is still a long way to go if Direct Line is to pay a stable dividend and restore investor confidence.
‘Now that the takeover frenzy has disappeared from the valuation, this seems a more reasonable entry point. But there is still a lot to do if Direct Line wants to challenge some of the best operators in the industry. Investors will eagerly await the upcoming Capital Markets Day, now scheduled for July 10.”
Direct Line shares rose 1.32 percent, or 2.5 cents, to 191.20 cents on Wednesday afternoon, after an increase of more than 20 percent over the past year.