As the original direct insurer, Direct Line is used to being ahead of the pack – but even it didn’t anticipate the size of the recent discount rate change, and its profits were sent tumbling as a result.
Earlier today, the company revealed its pre-tax profits for 2016 had fallen 30% to £353 million, down from £507.5 million in 2015, after it took into account the changes in calculating compensation payments for those with long-term injuries – which set it back an approximate £217 million.
On the back of the announcement, the company’s chief executive Paul Geddes remarked that he hoped the consultation on the payout rate would lead to a more “appropriate” method emerging.
“We’re hoping it’s more appropriate to what claimants actually invest in. We don’t think it should be a negative rate,” he added.
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In addition, the company saw a hit to its underwriting profits with a combined operating ratio of 97.7% compared to 94% in 2015, with reserve releases falling 29.6%.
On a brighter note for the firm, however, it confirmed that it has struck a deal with electric car manufacturer Tesla to offer insurance to drivers of its high-tech vehicles.
Tesla will become an introducer for the insurer – referring customers to Direct Line for insurance for its vehicles.
In addition, the company suggested it is working with Tesla to understand how future technologies such as driverless cars may influence the insurance market.
