Direct Line goes indirect in price comparison pivot

Direct Line, one of the UK’s largest motor insurers, will pivot from its origins selling straight to customers by putting its signature brand on price comparison websites for the first time.

The insurer becomes one of the last big names to bow to the increasing dominance of the websites in the UK market, where 90 per cent of customers shop for new policies, according to Direct Line chief executive Adam Winslow.

Launching his first strategy review on Wednesday, Winslow told journalists he wanted to give customers more of a choice over which channels they use to interact with the business.

He added that the company had previously been guilty of an “overreliance on direct [sales], compared to the understanding of the dominance, if you will, of the PCW channel”.

Direct Line disrupted the insurance market when it launched in 1985 by cutting out brokers and selling straight to customers, symbolised by the red phone used in its marketing campaigns.

But the market saw another overhaul in the 2000s as price comparison websites, in well known adverts fronted by meerkats and opera singers, created an easy route for customers to compare different carriers.

The insurer already has some brands such as Privilege and Churchill on price comparison websites, but the move to put its main Direct Line brand on these sites is a significant shift for the company. The company does not disclose the revenue split between the channels. Winslow said it meant Direct Line would be “shaking up the motor insurance market once again”.

Paul De’Ath, head of market intelligence at consultancy Oxbow Partners, said it was a “big moment” for the sector.

“Not putting yourself in that shop window limits your ability to reach customers,” he said. “This is pretty much the last big brand to admit that [price comparison websites] have dominance in the market.”

The announcement was part of a broader strategy reset in which Direct Line said it would focus on its core insurance lines of motor, home and commercial insurance lines, as well as breakdown services, and exit or stop investing in other areas such as pet and travel insurance.

Direct Line is striving to rebuild its valuation after shaking off a takeover attempt by Belgian rival Ageas earlier this year. The group said it planned to resume regular dividends, paying about 60 per cent of post-tax operating earnings, saying this would first be considered at the first-half results.

The company said earlier this year that its motor insurance operations had “turned the corner” after a post-pandemic surge in claims costs that had led to a string of profit warnings and the departure of its chief executive. 

The group later admitted it had not reacted with sufficient price increases to reflect that inflation, and had been pushing up premiums to repair its underwriting book. But it still posted a £190mn operating loss last year as policies written at lower prices continued to feed through into its earnings.

At its full-year results in March, Winslow set a new £100mn annual cost-savings target from areas such as marketing. On Wednesday, he said the group was not announcing immediate job cuts but would probably need “fewer resources”, including staff, as the company becomes more digital over time.

Barclays analysts said they would be “slightly worried that the service-led proposition” of the Direct Line brand may “struggle to maintain its edge” on the price comparison market, but added that the move could help reduce marketing costs and streamline the group’s operations.

Analysts at Citi said the “incremental news today is negative”, citing the expected reduction to income from exiting businesses, and other factors.

Direct Line’s shares were down slightly, to 192.5p, in morning trading on Wednesday, and are still some way below Ageas’s 237p-a-share second offer, which valued the motor insurer at £3.2bn.

Ageas decided in March that it would not push ahead with its takeover attempt, saying it could not justify a significant improvement to its cash-and-shares preliminary offer.