Direct Line sees profits
surge after
shunning
price war

CHURCHILL owner Direct Line Group said its refusal to get sucked into a price war in the fiercely competitive motor insurance market hurt first-quarter premiums.

The UK’s biggest motor insurer blamed its decision to hold prices and cut the number of new young drivers it takes on – deemed a bigger risk – for gross premiums falling 4.5 per cent during the first three months of the year to about £1bn.

But pre-tax profits surged 47 per cent to £94.3m from a year earlier after unusually low weather-related claims, despite freezing conditions. It usually gets about £25m of weather-related claims in its first quarter.

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It is also slashing costs, including axing about 1,200 jobs, which helped boost profits.

Rivals including RSA Insurance and Admiral have already warned over aggressive competition in the car insurance market in recent weeks, which has driven prices lower.

Direct Line’s gross written motor insurance premiums were down 16 per cent to £364.1m during the quarter.

Its live motor insurance policies fell almost seven per cent to about 3.8 million.

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The group, which also owns brands including Green Flag and Privilege, said young drivers as a share of its new business fell to 8.3 per cent from 11.7 per cent a year earlier.

The fall in motor premiums was partly offset by growth in its international business, where it is adding customers in Italy and Germany.

Chief executive Paul Geddes said Direct Line made “deliberate choices” which led to the fall in gross premiums, and expects the market to remain tough through 2013.

He said: “We believe these choices achieved an appropriate balance between managing risk and protecting value.”

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Prices are falling as the motor insurance market goes through sweeping changes, including reforms to cut fraudulent whiplash claims, as well as level pricing for men and women.

That is reversing a trend over the last three years when consumers have faced some of the biggest premium increases ever recorded, driven by sharp hikes in personal injury claims, fraud and uninsured drivers.

Direct Line has about 3,750 staff at its three sites in Leeds and one in Doncaster, part of about 15,100 staff across the group.