Lower car insurance premiums ahead, says Direct Line

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The boss of stock market newcomer Direct Line yesterday promised good news ahead for motorists with lower price premiums in prospect.

Announcing the insurer’s first-quarter figures since it was spun out of Royal Bank of Scotland in October, chief executive Paul Geddes said that the implementation of motor legal reforms should result in cuts in the cost of cover, particularly for younger drivers which at present are forced to pay a hefty premium.

UK insurers have had to cope with the impact of a ban on referral fees from the beginning of last  month which will affect future premium prices.

“We expect the impact of the reforms to be at least net neutral in the medium term for us but reduced claims arising from these reforms should, over time, contribute to lower premiums for motorists, especially young drivers,” he said.

Operating profits at the company climbed 32.9 per cent in the period even though gross written premiums were 4.5 per cent lower at just over £1bn.

The fall in premiums was planned, claimed Mr Geddes.  “The UK market remains competitive, particularly in motor. But we made some deliberate choices in the quarter that had the effect of reducing our motor premiums.”

He added: “We believe these choices achieved an appropriate balance between managing risk and protecting value.”

Motor insurers are being forced to contend with some of the toughest market conditions in recent years.

Not only are the insurers facing a probe by the Competition Commission, but their profits have also been hit by the loss of lucrative referral fees from third parties while price comparison sites continue to drive down prices.

Despite all of this, Direct Line said its combined ratio improved to 98 per cent during the period, compared with 104.5 per cent last year.

This effectively means that it made an underwriting profit rather than a loss.