High claims inflation and regulatory reforms lead to tough year for Direct Line Group

Direct Line Group said it suffered a “tough year” in 2022 as it faced substantial headwinds caused by high claims inflation and regulatory reforms.
By Greg Wright
Published 13th Mar 2023, 09:02 BST
Updated 13th Mar 2023, 09:11 BST

Direct Line said it experienced the highest weather event costs last year since the group listed more than a decade ago with £149m of claims, well above the 2022 £73m budget assumption. The largest event was December's freezing weather, which delivered around £95m of claims costs.

Group operating profit from ongoing operations fell to £32.1m from £590.3m the previous year, which the group said was a reflection of a volatile operating environment.

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Jon Greenwood, acting CEO of Direct Line said: "2022 was a tough year for Direct Line Group. Motor and home market conditions were challenging, with high claims inflation and regulatory reforms creating substantial headwinds for the business, and we did not navigate these challenges as effectively as we would have wished.

Library image of cars make their way along the A939 after heavy snowfall in the Scottish Highlands in December 2022Library image of cars make their way along the A939 after heavy snowfall in the Scottish Highlands in December 2022
Library image of cars make their way along the A939 after heavy snowfall in the Scottish Highlands in December 2022

"Exceptional weather and difficult investment markets also significantly impacted our results.”

Mr Greenwood added: "Motor, in particular, was affected by high claims inflation, which remained ahead of our expectations throughout the year, as well as the impact of regulatory changes. We have taken pricing actions that will support restoration of margins in Motor and mitigate the impact of further claims inflation. We have also accelerated a range of other actions including deploying additional resources in motor.”

Richard Hunter, Head of Markets at interactive investor, commented “There is precious little in these numbers to assuage the concerns which investors had previously identified.

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“Weather-related claims scored a direct hit on profitability and, for the year as a whole, had even more of an impact than the market had been expecting.

"The extremes of hot and cold temperatures culminated in the December freeze where, for example, £95m of claims were made. This contributed to an overall figure of £149m for the year, more than double the £73m budget assumption.

“The higher level of claims were part of an annus horribilis for the group, with regulatory reforms and the uncertainty of finding a new CEO to tackle the overall issues adding to the woes which Direct Line is facing.

"The strength of the brand and the scale of the business remain the lynchpins of any turnaround which the group might be able to engineer. By the same token, the insurance space remains one of high competition, with pricing a key feature. Any reduction in premium prices to keep up with the competition would of course put further pressure on margins and profitability.”