Direct Line has led the way in personal lines, but with rivals now snapping at its heels Andy Cook asks chief executive Annette Court is there life after direct sales

"Direct Line's results are not a fairytale," said Aviva executive director Patrick Snowball last week after the announcement of Aviva's general insurance results. One of the points Snowball was making is that Direct Line sets some of the highest standards in sales of personal lines products.

Just look at the results posted last week by Direct Line's parent, Royal Bank of Scotland. The number of motor policies sold in the

UK went up from just over 4 million to 4.7 million and profits soared 36% in 2002 from £261m to £335m.

But it is not all great news. Direct Line's combined ratio slipped from 88% in 2001 to 89.4% in 2002. This was mainly due to cost increases. For instance, expenses increased by 30% from £334m to £434m and net claims after reinsurance increased by 42% (£402m) to £1.35bn.

Direct Line is also under siege. Arch rival Churchill is snapping at its heels following the purchase of the renewal books of Prudential and Avon. Plus the new kid on the block, Esure - run by Direct Line founder Peter Wood - is also taking a six figure share of policies in the direct motor market and this could increase dramatically if (or most probably when) Esure gets a foothold with Cox.

So with the direct motor market looking ever more crowded and home cover continuing to be underpriced, Direct Line has to start looking further afield. Direct Line chief executive Annette Court wastes no time running through the company's attempts to broaden its scope.

Although market sources say that the insurer is finding the German and Italian markets difficult to crack due to their existing distribution models, Court is bullish. "There is little history of direct selling in Italy and Germany, but the same was true of Spain, and now we are the ninth largest motor insurer in a fragmented market," she says. "We were even voted insurance company of the year in Dinero magazine last year," Court adds.

Court claims that direct selling is catching on in Italy, but that things will take a bit longer in Germany.

Entering relationships
Partnerships are high on the agenda for Direct Line. Its partnerships division UKI is aiming to grow its gross written premium to £1bn in 2003. That's a 50% rise on last year's total. UKI's most famous partner is Tesco, but it also has deals with BMW, Egg, Citroen and Barclays.

With so many high profile partners already, it is difficult to see what areas of growth are available. Direct Line is unlikely to be entering into deals with banks as it is part of Royal Bank of Scotland. It is also unlikely that it will be entering into any deals with building societies as it has been a critic of how building societies tie in insurance to mortgage sales. Court also ruled out doing deals with other retailers. "There is no way we would compromise our relationship with Tesco," she says.

With the avenues seemingly restricted, would Direct Line do a deal with telebrokers - following Churchill's path away from pure direct? Indeed industry sources say that last year Direct Line entered into talks with the AA about joining its motor panel. Court says intriguingly: "Well it is not something that is within our current plans."

So if distribution is limited, then perhaps Direct Line is considering new product lines. After all, HBOS, Royal Bank of Scotland's bitterest rival has started selling commercial lines products through its broker Halifax General Insurance Services.

Court says that commercial lines is an option. "It's something that we're having a look at through the Royal Bank's NatWest branches. There are certainly opportunities there."

One of the other areas that Court is trying to drive up is roadside assistance. Currently, Direct Line's Green Flag roadside assistance business is third in the market behind the AA and RAC. "But we have big ambitions and what we'd like to do is overtake the RAC," says Court.

Just how far behind the RAC is Green Flag? "Well there are some very strange figures quoted about the number of members that the AA and RAC have.

"You need to look at the gross written premiums and sometimes it's quite hard to get those figures from those organisations, but we're not a million miles away from starting to really challenge the RAC and it's certainly taking us seriously."

Moving forward
Earlier this year, Peter Wood posted a mischievous challenge to Insurance Times' readers. Esure had 300,000 policies in its first year and Wood offered a bottle of bubbly top the first reader to say how long it took Direct Line to reach over 300,000 policyholders. The answer was four years and nine months.

Court noted the challenge and raised it with Wood afterwards. To show there were no hard feelings, she says, Peter paid for their next dinner.

As for Churchill, Court says: "Well I think we have to keep on our toes, there's some good people out there and we have to keep moving forward."

One area that Direct Line has moved on is image. Current advertising campaigns no longer focus on price, which was a feature for many years. New campaigns publicise service issues. Why?

"Well we've never considered ourselves as cheap with no service at all. Right from the start in 1985 we were just trying to be in some ways smarter about what we did and actually try to give customers what they really wanted.

What we found was that not only could we provide our policies to our customers at a good price, but we were also able to deliver superior service, as well just by being slightly smarter about what we did.

"Through the years we've emphasised pricing extremely heavily and we've emphasised service to some degree, and I think we're just trying to make sure that we've got the balance right. We think we differentiate ourselves by the kind of service that we provide to our customers."

Understanding needs
To aid sales Direct Line is aiming to develop a software system that allows one file per customer, so that customers get the feeling that they are dealing with one company that understands their needs.

"We are recognising the increasing number of people that have more than one product with us, so we're not just treating them as a separate policyholder for separate things. We're trying to deal with them more as individuals, or increasingly as households.

"Fortunately our systems are very good, they were designed from the start such that we would be able to recognise those kind of things," she says.