Direct Line will pay £30m back to overcharged customers thanks to FCA’s price walk rules
- Direct Line: “We have always tried to operate within FCA pricing rules.”
- The London-listed insurance group owns the Churchill and Green Flag brands
Direct Line has warned it could pay around £30million in compensation after admitting it was overcharging some consumers.
The insurer has agreed to conduct an audit into the application of the pricing practice rules introduced by the Financial Conduct Authority last year.
Such regulations were put in place to prevent “price hikes”, in which insurance providers charge higher premiums for the same services from long-standing customers.
Analysis: Direct Line has agreed to conduct a business review regarding the application of the pricing practice rules introduced by the Financial Conduct Authority last year
However, Direct Line has acknowledged that a number of policyholders are charging higher fees to renew their home and car insurance than if they had been to new customers.
She has pledged to pay compensation to all affected policyholders, which she estimates will currently cost around £30million.
A Direct Line spokesman said: “We have always tried to comply with FCA pricing rules.”
“It has become clear from our work with the regulator that there is a group of customers who may have been incorrectly charged.”
“We are already working to confirm these customers so that we can apologize and refund any amounts owed to them as soon as possible.”
The London-listed company, which owns the Churchill and Green Flag brands, also told investors on Friday that the investigation was unrelated to a separate review of car insurance claims.
In June, the company was ordered by the FCA to assess any losses from vehicles written off between September 1, 2017 and mid-August 2022 after the company admitted it underpaid some van and car customers.
Direct Line said it only expects to compensate a minority of customers and will be reaching out to those directly affected “to apologize and provide reasonable redress, including interest.”
Russ Mould, investment director at AJ Bell, said: “The greater damage Direct Line suffers from the £30m cost of covering over-priced consumer insurance products is to the company’s brand and reputation – albeit the financial cost is also painful will be.”
“It’s a really tough time for the company – inflationary pressures on receivables have helped undermine its reputation as a reliable earnings stock.”
The FTSE 250 group posted a loss of £39.5million last financial year, partly due to a surge in claims for damages from severe weather events.
Trade was also impacted by inflationary pressures in the auto division, where delays in the supply chain resulted in higher repair costs and soaring used car prices.
Former chief executive Penny James resigned in January, about two weeks after the company issued a profit warning and canceled the final dividend.
On Wednesday, Direct Line announced that Adam Winslow, head of Aviva’s general insurance business in the UK and Ireland, will become its next CEO sometime in the first quarter of 2024.
Shares in Direct Line Insurance Group fell 1.8 per cent to 159.3 pence on Friday morning, meaning they are down around 30 per cent year-to-date.