Direct Line Insurance Group (Direct Line) today offered its Q1 2020 trading update and revealed a 70% drop in motor insurance claims for April, which is credited to the nationwide lockdown caused by the coronavirus (COVID-19) pandemic. The average severity of these claims is expected to increase, however, as average repair durations lengthen and credit hire costs increase. Direct Line will continue to monitor these trends closely as the more severe lockdown restrictions begin to lift.
The group also reported a 4.7% rise in its Q1 gross written premiums, as compared to Q1 2020 as well as 5.6% growth in GWP within its direct own brands, as compared with Q1 2019. This own brand growth has been supported by a strong performance in motor (up 6.2%), Green Flag (up 11.3%) and commercial (up 10.1%).
The business has estimated that the impact of COVID-19 disruption to its travel business will be approximately £44 million, based on the assumption that the Government’s travel restrictions remain in place until the end of September. The trading update released today estimated that, after reinsurance recoveries of around £18.5 million, the group expects the net impact to be approximately £25 million in excess of the normal level of claims.
The range of measures that Direct Line is implementing to support its stakeholders is expected to incur approximately £70 million of cost. These measures include pausing all redundancies until at least autumn and supporting customers who are in financial difficulty. There has been increased pressure on insurance companies to offer motor insurance refunds due to the reduced road usage of most drivers, and Direct Line is refunding premiums to motor customers who wish to reduce their annual mileage or cancel foreign use, as well as refunding travel customers with multi-trip policies on a pro-rata basis.
CEO of Direct Line Group, Penny James said that the focus of the business in these difficult times is on supporting its customers, protecting its people and serving its communities. The business has a clear strategy and operational momentum, she said, and will continue to make progress on its strategic transformation.
Commenting on this trading statement, Neil Shah, head of research for the investment research company, Edison Group, highlighted that Direct Line’s estimated solvency capital ratio has increased to around 177%, which is near to the upper end of the group´s risk appetite. Also he noted the group is committed to continuing its strategic transformation even amid the impact of COVID-19.
