Direct Line navigating further motor claims inflation

Direct Line Insurance Group (Direct Line) said it responded swiftly to further inflation in motor claims in its latest trading update, published today (11 January 2023).

The insurer estimated that the impact of higher motor claims inflation on business it has already written would increase the 2023 group combined operating ratio (COR) by approximately two to three percentage points – relative to the target of 95%.

Penny James, chief executive, said: “We have taken actions to respond swiftly to further inflation in motor claims and will continue to navigate market volatility as it arises.”

An example of this response was the insurer’s introduction of a basic car insurance policy in November 2022 as premiums dipped by 8.9% – this was aimed at customers impacted by the cost of living crisis. 

Aggregator Confused.com noted that the third quarter of 2022 was the most expensive for motor insurance premiums. 

It revealed that overall premiums has increased by 14% compared to the same quarter in 2021. 

Claims inflation has had a “significant impact” on the Direct Line’s underwriting result for 2022, it said in a statement.

On a positive note, motor trading in the fourth quarter of 2022 improved against a hardening market with Direct Line’s brands’ in-force policies mostly flat across the quarter.

Claims inflation remains

Claims inflation, however, remains prominent feature of the motor market.

For its own managed damage claims inflation, figures remained broadly in line with Direct Line’s expectations.

However, the insurer saw a further increase in third party claims inflation during Q4 2022 – this quarter also saw an increase in claims frequency, although this was due, in part, to adverse weather conditions.

Currently, Direct Line estimates these factors will increase the motor loss ratio in 2022 by around six percentage points.

The insurer said it was continuing to take actions to address this.