Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Direct Line is cutting about 550 jobs, roughly 6 per cent of the UK insurer’s workforce, as part of a turnaround plan designed to save £50mn next year.
The company, one of Britain’s biggest motor insurers, has been struggling to repair a business badly hit by a post-pandemic surge in the cost of claims.
On Monday the company announced £50mn in cost cuts in 2025 as part of a drive to create a “leaner and more efficient operating model”, as it reported a slump in gross written premiums and associated fees in its latest quarter.
Chief executive Adam Winslow told the Financial Times that the bulk of the savings announced came from job cuts, adding “everything that we’re doing is in service of delivering those [cost-cutting] targets”.
Job reductions will not be specific to one part of the business at the insurer, which employed just under 10,000 people on average last year. Other savings would come from “improvements in procurement, technology rationalisation and simplifying our operating model”, the insurer said.
Direct Line, like its rivals, has raised prices for car and home insurance in recent years to catch up with spiralling inflation in claims costs. A series of profit warnings led to the departure of its chief executive Penny James last year and forced the company to scrap its dividend, which it reinstated this year.
It also recently fought off a takeover attempt by Belgian rival Ageas that was announced days before Winslow took over in March.
In a trading statement on Monday Direct Line posted a 35 per cent fall in gross premiums and associated fees in the third quarter from ongoing operations, to £705mn, thanks to a decline in its motor insurance division. Over the first nine months of the year, gross written premiums and associated fees were up 11.8 per cent.
Motor premiums in the third quarter of 2023 were boosted by a partnership with disability charity Motability, the group’s largest partnership, which Direct Line will instead account for in its fourth-quarter results this year.
The insurer stuck to its annual guidance of 7-10 per cent compound annual growth in gross written premiums and associated fees between 2023 and 2026 across its non-motor divisions.
Winslow said the company was “in the early stages of a significant turnaround”, which had not been reflected in its third-quarter results. In July, the insurer said it would put its signature brand on price comparison websites for the first time, intensifying pressure on the group to compete with cheaper rivals.
Winslow added: “We need to ensure that our cost base benchmarks well against the peer group, particularly when you think about price comparison website-orientated distribution.”
About half of the company’s business now derived from price comparison websites, Direct Line said, across its brands including Privilege and Churchill.
Shares in Direct Line rose in early trading, but were down about 0.35 per cent by late morning in London.
Analysts at Citi said the update suggested that the restructuring was on track. “Given the recent share price performance . . . we think this is enough to be taken well,” they commented.
Peel Hunt analysts said: “We see 2024 as a transition year, laying the groundwork for recovery in 2025.”
