Direct Line has warned it could pay approximately £30million in compensation after admitting to overcharging some consumers.The insurer has agreed to
Direct Line has warned it could pay approximately £30million in compensation after admitting to overcharging some consumers.
The insurer has agreed to conduct a business review regarding the application of pricing practices rules introduced last year by the Financial Conduct Authority.
Such regulations were brought in to stamp out ‘price walking,’ whereby insurance providers charge higher premiums to longstanding customers for the same services.
Analysis: Direct Line has agreed to conduct a business review regarding the application of pricing practices rules introduced last year by the Financial Conduct Authority
But Direct Line has acknowledged charging a number of policyholders more for renewing their home and motor insurance than if they had been to new customers.
It has vowed to remunerate any impacted policyholder, which it currently estimates will cost around £30million.
A Direct Line spokesman said: ‘We have always sought to operate within the FCA’s pricing rules.
‘What has become clear from our engagement with the regulator is that there are a group of customers who may have been incorrectly charged.
‘Work is already ongoing to confirm these customers, so we can apologise and refund any money owing to them as quickly as possible.’
The London-listed firm, which owns the Churchill and Green Flag brands, also told investors on Friday that the probe was unconnected to a separate review regarding motor insurance loss claims.
In June, the business was ordered by the FCA to assess all losses on vehicles written off between 1 September 2017 and mid-August 2022 after admitting to underpaying some van and car customers.
Direct Line said it only expected to compensate a minority of customers and would contact those directly affected ‘to apologise and provide appropriate redress, including interest.’
Russ Mould, investment director at AJ Bell, said: ‘The greater damage to Direct Line from the £30million cost to cover over-charging customers for insurance products is to its brand and reputation – even if the financial cost will sting too.
‘It compounds a really tough period for the company – inflationary pressures on claims have helped undermine its credentials as a reliable income stock.’
The FTSE 250 group slumped to a £39.5million loss in the last financial year partly because of a surge in claims from heavy weather events.
Trading was also impacted by inflationary pressures in its motor division, where supply chain delays caused higher repair costs and soaring used vehicle prices.
Former chief executive Penny James quit in January about a fortnight after the company issued a profit warning and cancelled its final dividend.
On Wednesday, Direct Line announced that Adam Winslow, the head of Aviva’s general insurance business in the UK and Ireland, would become its next CEO sometime in the first quarter of 2024.
Direct Line Insurance Group shares were 1.8 per cent lower at 159.3p on Friday morning, meaning they have fallen by around 30 per cent since the year started.