Wednesday 6 May 2020 10:11 am

Insurer Direct Line set for £44m coronavirus hit to travel claims

Insurer Direct Line is expecting to take a £44m hit to its travel business from the coronavirus crisis, the company said today, with claims set to fall by 70 per cent.

The firm also said it expected to incur £70m in costs from measures to protect its customers, such as providing all NHS workers with free breakdown services.

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Shares in the firm rose 4.8 per cent in the morning’s trading.

The figures

Direct Line said that gross written premiums had increased 4.7 per cent in the first quarter, to a total of £789.2m.

A 6.2 per cent in motor premiums to £410.9m, as well as a 10.1 per cent increase in commercial premiums to £132.6m, drove the increase.

However, the insurer said that the crisis would result in a gross cost of £44m to its businesses, with estimated recoveries of £18.5m.

The forecast is based on a scenario in which the Foreign Office’s coronavirus travel advice remains in place until September.

Direct Line said its estimated solvency capital ratio at the end of March was 174 per cent increasing to an estimated 177 per cent in May, which is towards the top of its 140 – 180 per cent risk appetite range.

Why it’s interesting

In order to protect customers during the coronavirus pandemic, Direct Line has implemented a number of measures to the tune of around £70m.

For motorists, the firm is refunding premiums to customers who wish to reduce their annual mileage or cancel foreign use and refunding travel customers with multi-trip policies on a pro-rata basis.

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It is also  waiving cancellation fees for people who have lost their jobs or seen reduced hours, and offering payment deferrals.

All NHS workers are covered for free under the Direct Line’s green flag road rescue programme, while NHS workers who are customers are also  eligible for free home emergencies and personal protection cover.

The company also said that all of its own roles would be protected through the autumn. 

Hargreaves Lansdown analyst William Ryder said the update suggested the coronavirus would have “little impact” on Direct Line’s profits:

“The group’s capital ratio is near the top of its usual range, and unless anything goes wrong from here it should stand the group in good stead to start paying dividends again once the current disruption subsides.

“However, investors may need to wait and there could still be some twists in the road ahead.”

What Direct Line said

Penny James, the firm’s chief executive, said: “We are a strong business with a clear strategy and operational momentum. 

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“We’ve traded well during the first quartet and continue to make progress on our strategic transformation. Our solvency position is strong, partly as a result of the difficult decision to cancel our final dividend for 2019 and also because of our resilient business model. 

“Acknowledging the importance of dividends to shareholders we will review our dividend position alongside our half year results and on an ongoing basis once it is possible to have a better understanding of the impact of Covid-19”.