Bigger than expected rise in motor insurance prices boosts Direct Line

The insurer, whose brands include Churchill, Green Flag and Privilege, said its car insurance prices rose 8.4 per cent in the third quarter after the whole market increased the cost of car cover over the past nine months.

Motorists have been hit by more expensive car premiums as insurers fight back against higher claims and after a number of years of falling prices amid tough competition, stoked by price comparison websites.

A benchmark survey by roadside assistance firm AA showed a 4.8 per cent increase in the third quarter in the Shoparound quote – an average of the five cheapest quotes returned from price comparison sites as well as direct insurers and brokers.

Data from price comparison website Confused.com and consultants Towers Watson & Co showed an 8.1 per cent rise in motor premium prices for the period.

The cost of car cover will be raised further after the Government increased the standard rate of Insurance Premium Tax (IPT) – the tax paid each time an insurance policy is purchased in the UK – from six per cent to 9.5 per cent from November 1, as announced in the summer Budget.

The change will affect 7.3 million car policies, as well as 4.7 million household policies, three million pet policies and three million private medical insurance policies, according to the Association of British Insurers.

Analysis by AA Insurance estimates that young drivers can expect to see the annual cost of their policy shoot up by more than £40.

Direct Line, which was spun out of the Royal Bank of Scotland three years ago, said the recent rises in car insurance prices are “indicative of market claims inflation”.

The insurer, which employs around 2,000 staff in Leeds and Doncaster, said it is on track to achieve its 2015 targets.

It saw gross written motor premiums rise by 6.8 per cent in the three months to the end of September and said in-force motor policies increased by 0.8 per cent despite the price rises.

The motor performance helped overall gross written premiums rise by 3.1 per cent in the third quarter to £844.5m, with a 1.3 per cent rise over the first nine months of the year to £2.4bn.

Analysts at Morgan Stanley said in a note to clients: “This is a good headline increase, and management indicate this is where they need to be to pricing to meet their target loss ratio.”

A strong showing in the motor division was offset slightly by a drop in home insurance written premiums to £235.8m in the third quarter, down from £243.7m a year earlier.

Direct Line said its performance in the first nine months of 2015 was helped by a seven per cent cut in costs.

Clement weather also boosted profits as a lack of storm damage, floods and other weather events resulted in fewer claims.

Weather-related claims cost Direct Line £64m in the same period last year.

The company refreshed its Churchill brand with a new advertising campaign during the first half of 2015.

Analyst Eamonn Flanagan at Shore Capital said: “Direct Line has issued a steady third quarter management statement reporting around one per cent growth in premiums in the nine months, up three per cent in the third quarter, a one per cent reduction in policy count, a seven per cent reduction in costs and a 2.4 per cent investment yield in the first nine months of 2015.

“The latter two aspects are in line with our full-year forecasts.”

Analysts at Peel Hunt said Direct Line had reported “a solid set of third quarter numbers”.

Direct Line timeline

1985 - Direct Line is launched, in partnership with RBS, selling motor insurance

1988 - It expands into home insurance

1990 - Direct Line launches the red telephone on wheels for TV ads

1997 - It launches pet and travel insurance

1999 - The group expands from a phone service to the Internet

2003 - Direct Line buys Churchill insurance

2012 - RBS Insurance rebrands as Direct Line Group ahead of its divestment from RBS Group. The insurer then separates from RBS and floats on the London Stock Exchange

2014 - RBS complete the sale of its remaining interest in Direct Line Insurance Group. Direct Line enters the FTSE 100