Direct Line Raises Car Insurance Prices Amid Rising Inflation
British motorists are facing new cost pressures after insurer Direct Line (DLG.L) announced it would raise premiums as fuel prices soared amid the fuel cost crisis life.
It comes as the FTSE 250 (^FTMC) company reported lower first-half earnings. Operating profit fell 47% to £195.5 million ($239 million) in the first half.
Pre-tax profit fell 32% to £178m but was still above analysts’ forecast of £155m.
The insurer said it would raise insurance premiums in response to the effects of soaring prices for everything from used cars to spare parts.
Chief executive Penny James said the insurer expects auto claims inflation to rise by around 10% in 2022, adding that “our rate increases…need to reflect that.” Rates rose 15% in the first half.
James also noted supply chain issues following the pandemic and the war in Ukraine, which made it harder to find parts and added to repair times.
The company’s shares sipped 0.5% in afternoon trading in London on Tuesday.
James added: “Thanks to price action, action taken across our garage repair network and the rollout of improved pricing capability, we are now back to writing to our target margins based on latest claims assumptions.”
“We remain ahead of our objective of long-term return on tangible equity despite the challenges. We announce an interim dividend in line with 2021 and are confident in the sustainability of our regular dividends as we look to the year complete and beyond.”
The insurer maintained its interim dividend of 7.6p per share, and the CEO said the company was “confident in the sustainability of our regular dividends”.
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Tuesday’s results come after the company already lowered its profitability forecast in July, saying the motor insurance market saw “significant” levels of claims inflation in the first six months of the year. .
Direct Line said: “The UK motor market experienced significant levels of gravity inflation in the first half of 2022. Market premium inflation continued to lag behind the increase in claims inflation and we now estimate that overall auto claims severity inflation for 2022 will be around 10%.
“As a result, our motor attrition loss ratio for the current year increased to 86.4%. We have taken steps to mitigate the short-term impact of this and have now returned to writing at our target margins based on the latest loss assumptions.”
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