1st Sep 2023 12:55
(Alliance News) - Direct Line Insurance Group PLC on Friday was told it must payout GBP30 million, but analysts believe the biggest hit will be to the insurer's brand and reputation.
"One home-grown company that isn't having the best end to the week is insurance giant Direct Line," said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
Direct Line Insurance charged existing home and motor customers more for their renewals than if they had been a new customer, the UK financial regulator said on Friday, and it will provide redress costing about GBP30 million.
Lund-Yates said "this is a big no-no these days amid the regulator's efforts to make pricing fairer and more transparent".
She added that "it's not so much about the money as it is about reputation."
"The group's been in a tricky spot in recent years, and encouraging customers to come to you and stay there is a far harder task when trust has been broken," Lund-Yates continued.
AJ Bell investment director Russ Mould agreed. He said: "The greater damage to Direct Line from the GBP30 million cost to cover over-charging customers for insurance products is to its brand and reputation – even if the financial cost will sting too."
The Financial Conduct Authority said Direct Line will carry out a voluntary review of past business to "identify all instances where a customer has been overcharged and provide appropriate redress" where the FCA's pricing rules were violated.
The FCA said customers don't need to do anything, as they will be contacted by Direct Line.
Direct Line confirmed the FCA announcement on Friday, saying the review relates to pricing practices regulation put in place by the UK financial services regulator at the start of 2022.
"An error in our implementation of these rules has meant that our calculation of the equivalent new business price for some customers failed to comply with the regulation," Direct Line said.
"As a result, those customers have paid a renewal price higher than they should have."
The FTSE 250 company estimates the redress payments to customers will cost it around GBP30 million, for which half was provided in its 2022 results.
Direct Line said Friday's announcement was unconnected to one it made in late June of a past business review of motor total loss claims.
Direct Line shares were down 1.4% to 159.95 pence on Friday afternoon in London.
By Sophie Rose, Alliance News reporter
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