Claims Direct will undergo a massive restructuring, after warning of a £20m loss for its first year as a plc.
The announcement follows a profits warning in January, which led to the departure of its former chairman Tony Sullman.
In a trading statement issued last week, the insurer said it expected to make an operating profit of “not less than £6m” for the six months to March 31, 2001, but that this would be substantially below market expectations.
It compares to an operating profit of £11.8m in the first half of the year, giving a total of £17.8m.
The company said it had to set aside £20m for two exceptional one-off costs.
It has earmarked £15m to secure additional underwriting capacity from its Lloyd's insurers and has announced £5m for ex-gratia payments to disgruntled former customers. This is believed
to leave the firm with net assets of just over £30m.
The statement said the company had begun to review its staffing levels and might reduce its franchise operation of 20 high street shops. A spokesman added that some shops might
be sold to franchise holders, but he ruled out their closure.
Claims Direct said it had been forced to consider these changes because its level of personal injury claims business had failed to recover to pre-November 2000 levels. Despite a £20m advertising campaign, its case-load remained at around 2,500 cases per month, compared to 4,000 last November.
The insurer blamed the drop on increased competition in the personal injury claims market, low consumer confidence and uncertainty surrounding the recoverability of after-the-event insurance premiums.
“We believe that the corrective action we have taken will successfully stabilise the business and that it is now more strongly positioned,” said chief executive Colin Poole.