Direct Line calls for immediate action over government flood scheme
Wednesday 26 February 2014
One of Britain’s largest insurers today warned that immediate action must be taken to prevent thousands of flood-prone homes being left without protection over the next few years.
Direct Line said the Government-backed Flood Re scheme, which will see the industry offer subsidised cover to 350,000 households, should be enforced next year as planned and not delayed any further.
It comes in the wake of comments by rival Hiscox boss Bronek Masojada earlier this week, who claimed Flood Re should be extended to include even more households. The lifeboat will be funded by a levy on all home insurance policies.
Paul Geddes, chief executive of Direct Line, which is facing up to £110 million in claims from the wet winter weather, said: "We have to draw a line somewhere because there are thousands of households counting on it being put into action.
"It’s a public policy debate, but the more people that are covered by the scheme, the more everyone else is going to have to pay."
Direct Line, which was spun out of Royal Bank of Scotland in 2012, posted pre-tax profits of £423.9 million last year, compared to £249.1 million in 2012, despite taking in less money from premiums year-on-year.
Fewer claims across the year meant its combined ratio improved by 3.1 per cent to 96.1 per cent. Any figure below 100 per cent, shows that an insurer is earning more in premiums than it pays out in claims.
Geddes added: "In UK Motor, our improved pricing capability and claims management, as well as benefits arising from recent legal reforms, enabled us to reduce average prices for customers by 3 per cent during 2013. In Home, recent UK weather events have emphasised the importance of insurance."
Shares in the company rose more than 1 per cent to 264p as it raised it final dividend 5 per cent to 8.4p. A second special dividend of the year, worth 4p, took total dividends to 20.6p.
The company is also benefiting from a tough cost-cutting programme in which it hopes to save £1 billion by the end of this year.
Oliver Steel, analyst at Deutsche Bank, said: “Direct Line has announced a strong set of numbers, with a confident outlook statement, a second special dividend and higher than expected solvency position likely to raise expectations of further special dividends.”
He added, however:"The group also warns that competition in motor has picked up again in the first quarter."
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