The insurer has announced a new wave of redundancies as it continues its search for savings

Direct Line’s 2,000 proposed job cuts deliver a clear message: cost control is the key to success in the cut-throat UK personal lines business, especially motor.
Direct Line has discovered that its expense ratio is way out of line with its peers, which is one of the reasons why it has taken such drastic action after already announcing just under 1,200 job cuts in 2012.

The move is reminiscent of Equity Red Star’s actions in May. Discovering its expense ratio was 12 points higher than its rivals’, Equity’s new management promptly cut 200 jobs and closed six offices. Chief executive Ian Parker said at the time: “There is not a business on the planet that can give away a 12-percentage-point expense difference to its rivals.”

His comment rings particularly true for personal lines motor. The product is typically a grudge purchase bought on price. Insurers have to price as keenly as possible to be in with a shout of winning business, and for this they need a low cost base.

It is no coincidence that the firms held up as winners in the UK motor market have the lowest costs. Admiral and Sabre are the most profitable underwriters, and have expense ratios of 17.7% and 14.8%, respectively.

Direct Line had more fat to trim than most; it retains old structures from its time as a subsidiary of The Royal Bank of Scotland. But expect other insurers to continue the search for savings as they strive to make underwriting profits in an increasingly tough market. Unfortunately for UK GI staff, more job losses loom.

Topics