Direct Line, one of the big names in UK car insurance updated the London stock market with a trading statement earlier today. Direct Line saw a 70% drop in car claims in April, but it does expect that future repairs and write-offs will be more expensive to process. That’s partly due to social distancing, increased sanitising and cleaning procedures within workshops, plus potential delays with spare parts supply.
Those car repair problems are industry-wide of course, and Mike Brockman from ThingCo noted last month that the big names within UK insurance would probably have to consider extending some financial support to their approved garages and repair shops, simply to preserve capacity throughout 2020.
Meanwhile Direct Line policyholders may get partial refunds, for lack of EU wide insurance, or a reduced annual mileage, based on the lack of travel in March and April in particular. Amounts are likely to be £20-£35 or so, based on what IE magazine sees other insurers offering consumers right now.
There is tremendous irritation right now amongst consumers at the slow response to the lockdown, and the lack of automated refunds for UK drivers unable to use their cars. The backlash, coupled with unhappiness over travel and business claims, may yet spark a series of disruptive moves as insurtechs and new car insurance brands look to start afresh with innovative, PAYG car cover, primarily based on smartphone data and a claims-free history, rather than postcodes, jobs and mileage.
Insurance is a social contract, as much as it is a written agrement and those who tear up that unwritten aspect, and are judged to have broken trust with the policyholder, may seriously damage their long term brand values.
DIRECT LINE STATEMENT
Penny James, CEO at Direct Line Group told investors;
“In these difficult times our focus has been to support our customers, protect our people and do what we can to help the communities we serve. I am grateful to the team for their fantastic response which enabled us to move quickly to home working for almost all our people, except a limited number who are repairing cars for those with essential travel needs.
We expect to incur £70 million across a range of measures to offer additional value to our customers with particular focus for those in financial difficulty, to give our people job security and to work with local authorities and charities to target funding towards those supporting the most vulnerable.
“We are a strong business with a clear strategy and operational momentum. We’ve traded well during Q1 and continue to make progress on our strategic transformation. Our solvency position is strong, partly as a result of the difficult decision to cancel our final dividend for 2019 and also because of our resilient business model. Acknowledging the importance of dividends to shareholders we will review our dividend position alongside our half year results and on an ongoing basis once it is possible to have a better understanding of the impact of Covid-19.”
James Blackham, CEO at By Miles, PAYG insurance specialist, commented;
“Direct Line stated they saw a 70% reduction in claims in April, which we’ve calculated adds up to a Covid-19 windfall profit of £60m. A profit that is a direct result of fewer cars on the road, due to people being instructed to stay home during lockdown.
Their offer to refund premiums to motor insurance customers who contact the insurer directly asking to update their mileage is not enough. Refunds should be automatic and based on reduced usage month by month, not reliant on customers recalculating and asking to update their annual mileage.
We hope Direct Line reconsiders its position and commits to automatically refunding customers, as Admiral has done, so that those who are driving less, pay less.
This crisis has shown UK drivers that the way car insurance works is unfair. Insurance needs to evolve to work in this new world. It’s time to move toward car insurance that offers flexibility and proactively rewards people for driving less.”