This year’s flood influx is estimated to cost around £10m

Insurer Direct Line Group estimates that November’s floods have cost it around £10m across its home and commercial lines.

This year has seen unprecedented flooding, primarily in Yorkshire and other parts of the north of England.

Despite this, DLG has reported in its quarter three trading update that claims inflation to date in 2019 is lower than the insurer expected.


Gross written premium (GWP) across DLG’s motor products amounts to £457.8m for Q3 in 2019 – a 0.3% increase on Q3 results last year. The insurer attributed this to better new business trading, especially the success of its Churchill brand on price comparison websites.

Motor remains the core of DLG’s business. In the nine months to September 2019, motor GWP totalled approximately £1.3bn, compared with £333.9m in its rescue and other personal lines.

The group’s home GWP fell by 4.9% in the three months to September 2019, to reach £158.6m compared with £166.7m last year; this was mainly driven by the run-off of partnerships.

Rescue and other personal lines at DLG improved GWP by 3.5%; this equates to £117.4m for Q3 2019. The insurer reported that Green Flag, its direct rescue brand, passed a record one million in-force policies, with GWP up 15.5% compared with Q3 2018.

Commercial GWP on the other hand, increased by 5.3% between Q3 2018 and Q3 2019, amounting to £124.2m in total, compared with £118m last year. DLG attributed this to growth in Direct Line for Business, including products for small and micro enterprises, and NIG.

Goal setting

DLG has set ambitious financial targets for the years ahead, including reducing its operating expenses before amortisation and depreciation to £590m by 31 December 2021 to absorb the cost of planned growth and expected inflation. As at 31 December 2018 operating expenses were £722m, or £644m before amortisation and depreciation.

The group further expects an increase in non-cash amortisation and depreciation charges as its technology assets are used, creating operating expenses of less than £700m.

DLG plans to achieve a 20% operating expense ratio by December 2023, through automation and process improvement, self-service and digitalisation.

The insurer estimates that restructuring and other one-off costs will come to £60m for 2019 and 2020, while technology assets will reduce its capital expenditure to less than £100m for the year ending December 2021.

The group’s capital management policy and solvency risk appetite remains between 140% and 180%, however the firm plans to use its expertise in this area to explore opportunities such as reinsurance.

Strategic aims

In conjunction with its Q3 results, DLG has also launched its organisational vision and purpose, as well as highlighting six objectives to focus business improvement.

The group’s objectives include finessing its direct relationship with customers and the direct customer journey, using technology to adjust pricing and trading capability to better compete on price comparison websites and using IT platforms to extend its partnership reach and aid participation in market consolidation.

The business will further centre on using its scale and data to influence claims, pricing and underwriting, bringing its cost base in line with the market in order to be more competitive and empowering talented staff.

DLG will underpin these objectives with a sustainability focus.

Technology driven

Penny James, DLG chief executive, said: “I’m encouraged with the group’s performance in Q3, with motor returning to modest growth, helped by some improvement in market conditions. Although we are only halfway through Q4 the improving trends have continued.

“Looking ahead, I’m excited by our potential. At the heart of our business is the passion to provide our customers with outstanding service and peace of mind, and these qualities have been the foundation of the group’s good financial returns, supported by our robust balance sheet.

“My new executive team and I are building a platform that combines our strengths of customer and brand with technology, and is a simpler, leaner and more agile business to deliver the real potential we see, unlocking value for shareholders.

“We are starting to conclude a phase of high capital expenditure aimed at bringing our technology to the forefront of the industry. We are in the process of rolling out much of this technology now, and while there remains more to do, we are pleased with the progress so far. We expect capital expenditure to begin to decline from its peak in 2019 and for all our major IT platforms to be substantially rolled out by the end of 2021.

“Assisted by the technology change, we will transform our business by working in a faster and nimbler way to deliver the potential of the group. This includes improving our cost efficiency, enabling faster and more accurate pricing and continuing to improve customer experience. All this aims to strengthen margins on the business we write and increase our competitiveness to deliver growth.”

DLG is hosting its inaugural Capital Markets Day today at its Doncaster contact centre.