Home insurance – Direct Line’s CEO leaves; indication of higher premiums?

Why the shock resignation of Direct Line’s CEO may bother you.

Penny James left Direct Line Insurance on last week (reported 27 Jan) after warning on 11 Jan that company profits were lower than forecast due to home insurance claims. The company is set to cancel a share buy-back (c £50m) and shareholder pay-outs for 2023.

Direct Line’s exposure to the impact of freezing weather and burst pipes may be greater than some other Home and Contents policy providers but we may face an underlying industry risk which will ultimately cost us all money.

Why if you’re not insured with them?

Over the past decades, insurance has been very competitive with a ‘race to the bottom’ in pricing, rush for a larger market share of customers (You) and increased pressure on rapid and fair payment of claims – which became a leading marketing theme for Direct Line who were good at it.

The problem is that insurer performance becomes increasingly reliant on accurate asessment of risk (likelihood and impact) of events.

That is because the pricing (premium you pay per value/risk) must cover their claims (losses) their operating costs and their profit. They may be getting it wrong with “gaps” and “limitations” in insurers modelling.

The ‘age-old’ opportunity for building in a pricing buffer has been reduced by the regulators (FCA) who are questioning pricing methodology. THey have imposed rules on new policy incentives and price creeping with loyal customers – all in 2022!

There may also be a rethink due the summer period of drought which may impact future building claims.

The Bank of England carries out ‘stress tests’ to make sure our insurers have enough money to pay out on their potential claims – this is important to make sure insurance works.

The Bank of England is concerned that fiirms may not have enough cash to pay all our potentail claims. It has written to insurance bosses. On freezing, wind and drought risks, insurers have predicted the risk of the events well. But, they have not budgeted for the increasing value of claims from the damage caused.

As CEO, if your staff get risk/price calculations wrong then your business loses money and, as head of shop, off you go; jump perhaps before being pushed?

OK but why does that matter to me?

In short, the premiums will go up to cover the errors in the insurance sector.

Price increases? £75 per year on an average home insurance policy. 13% on car policies?

What can you do about it?

• Our consistent message. Reassess your needs, valuables and cover and shop around for the best policy for you. Read our tips.
• Get numerous quotes as the best price is not necessarily from the best headline premium advert.

For example:

If you have valuables like rings, watches, phones, cycles all about £1750 each.

Some policies may set the itemised valuables at £1500 while others at £2000 – If the valuables are above the policy single item limit, they cost more and possibly up to 10x more, to insure.

The result is a big difference in the final home insurance premium above the headline rate.

Not all policies are the same – one size doesn’t exist, and none fit all!

1. SHOP AROUND for the best deal.
2. Call your insurer to see if you can get a reduction from your quoted renewal price!