The company’s operating profit fell by 6.4% year on year to £601.7m in the year ending 31 December 2018

Direct Line Group has seen its operating profit fall after a “bumpy” year.

The company’s operating profit fell by 6.4% year on year to £601.7m in the year ending 31 December 2018.

This was largely down to “an exceptional year” incoming chief executive Penny James told Insurance Times.

Post-Ogden rate changes, as well as variable weather as well as the overall rising price of claims all contributed to the results, she said.

The group’s combined operating ratio also rose to 91.7%, from 90.8% the previous year, which James said was better than the 93-95% target range that the company had predicted.

“Overall we think it’s a strong set of results, albeit last year was a challenge,” she added.

Claims inflation

Outgoing chief executive, Paul Geddes acknowledged that there is claims inflation in the market. For DLG, it is seeing a typical inflation of 3-5%, while he added that some other companies had seen higher.

But DLG has some “mitigants” in place, Geddes added, including its own garages, which he said helped off-set greater demand last year. DLG did price 0.6% in the fourth quarter, he said.

“Our strategy of playing the market cycle is that we will always be seeking to get the right loss ratios.

“The rate of growth has slowed, and if we went a bit negative that would be OK because it’s all about value and getting the right loss ratios, so that we can then deliver the right ratios and the right rote, that’s the hierarchy for us,” Geddes added. 

The group’s GWP also fell by 5.3% year over year, but James attributed this to the ongoing effect of the loss of the Nationwide home insurance partnership deal. She pointed out that the company’s direct own brands has seen a 1.8% growth last year, in a challenging market.

Geddes highlighted injuries as the largest area of claims cost (40%), while non-bodily costs such as fire and thieft, accidental damage accounted for the remaining 60%.

This is being driven by more complex cars, as well as the weakening currency making it more expensive to import car parts. ”A bumper is not just a bumper any more”, he said. 

Accident frequency also rose last year compared to 2017, Geddes explained, but only to a ’normal’ level. ”We’re quite conservative with what we assume, but the same bumpers that are expensive to repair should be reducing frequency on a longer term trend. That could be an offsetting factor,” he predicted. 

The company had set its Ogden reserving at 0%, giving it a reserve release of £55m.


The company also announced it was launching a new platform to be released within weeks aimed at the price comparison channel.

Darwin is one of several projects DLG has been working on to target customers within its footprint but currently not using its products, James said.

It will be a “straightforward product and entirely customer self-service”, she said. It will also use a different pricing model from DLG’s other products.

Speaking of her new role, James praised the company’s “ambition” and sees “real opportunities” for growth. She said the things that will ultimately determine success over the coming years will be the effective execution of transformation programme, as well as competitiveness in the market. ”We need to use technolofy to make sure we have a more efficient model, because customers are choosing to contact us in a different way - online and on mobile. We need to evolve our model.”