November 20, 2019 / 5:47 PM / 9 months ago

Direct Line to rein in costs as competition intensifies

(This Nov. 20 story refiles to remove extraneous words in 11th paragraph)

FILE PHOTO: A photo illustration shows insurance renewal notices from Direct Line in London October 10, 2012. REUTERS/Suzanne Plunkett

By Muvija M

(Reuters) - Direct Line Insurance Group Plc (DLGD.L) on Wednesday laid out a plan to cut expenses and bolster digital presence as Britain’s biggest motor insurer looks to thrive in an industry plagued by stagnant prices and stinging competition.

The plans, under Penny James who took on the top job this year, follow a 2.3% fall in number of policies in force to 14,837 for the three months ended Sept. 30.

That underlined the company’s struggles to keep up with competitive pricing offered by smaller rivals, although gross written premiums saw a 0.4% rise to 858 million pounds ($1.11 billion).

“We always put our view of claims inflation through our premium numbers. Our prices always go up including what we think claims inflation will be... Earlier in the year we were losing some business because of that and what we found in Q3 is actually that’s stabilised,” James told Reuters.

“What it tells us... is that the market as a whole is starting to put some price through so prices are starting to go up reflecting claims inflation.”

Direct Line has underperformed rivals Admiral Group Plc (ADML.L) and Hastings Group Holdings Plc (HSTG.L) in terms of share performance year to date with a fall of 12%.

(For a graphic on Direct Line click, here)

While the cost of a motor insurance policy fell in the UK for the last quarter, Britain’s plans to change the discount rate used to calculate compensation for personal injuries has also hurt main players in the sector.

Insurers have also had to bear the brunt of higher repair costs for newer cars outfitted with high-tech safety and entertainment gadgets.

Hastings (HSTG.L) said last month that its annual loss ratio may move above its target range if the cost of claims continue to increase.

Direct Line, the owner of Churchill and Privilege brands, looks to slash its capital spend to less than 100 million pounds from fiscal year ending on Dec. 31, 2021 compared with the 175 million pounds expected for the current year.

The former FTSE 100 constituent also aims to cut its operating expenses before amortisation and depreciation to below 590 million pounds by 2021 from 644 million pounds in the last year.

It said would incur restructuring and other one-off costs of about 60 million pounds in 2019 and 2020 due to the new goals.

Reporting by Muvija M in Bengaluru; Editing by Rashmi Aich and Lisa Shumaker

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