Direct Line to shake up market as caves into comparison site pressure

(Alliance News) - Direct Line Insurance Group PLC's decision to put motor insurance products on price comparison websites was a "significant event", analysts said.

On Wednesday, the Bromley, London-based insurer said it would put products on PCWs for the first time, as part of a "refreshed" strategy aimed at making the firm the "customers' insurer of choice."

"Putting our strongest brand, Direct Line, on price comparison websites, where 90% of consumers shop, means we will be shaking up the motor insurance market once again," said Chief Executive Adam Winslow, who joined the business earlier this year.

AJ Bell Investment Director Russ Mould said news that Direct Line is finally "caving in" is a "major change for the business and a significant event".

He explained that insurers who shun PCWs avoid paying a commission fee for sales and in theory can offer a lower rate to customers.

But it also mean Direct Line and others who have historically shunned comparison sites miss out on a big pool of potential customers, he pointed out.

"It’s become second nature for the majority of people to buy insurance via comparison sites and the channel is now often the first port of call for getting a quote," Mould noted.

Mould feels Direct Line is effectively saying it "can no longer afford to ignore the comparison site channel".

But while it might see an increase in customer volumes, earnings will inevitably be lower for these policy sales, he stated.

"That could have a negative knock-on effect for dividend payments to shareholders," he suggested.

Direct Line announced the change ahead of a Capital Markets Day on Wednesday.

Direct Line said it intends to pay around 60% of operating earnings as a regular dividend.

"We expect the delivery of our financial targets to underpin attractive future returns for our shareholders", the company said in a statement.

This includes a "plan to restart regular dividends".

"The board will review the conditions it previously set to consider a restart of the regular dividend on an ongoing basis," Direct Line added.

Direct Line expects its solvency capital ratio to build over time to support additional shareholder returns.

In the medium term, Direct Line is targeting a solvency ratio of around 180%; however, in the short-term, it expects to maintain a solvency ratio above this level. In 2023, the solvency ratio was 197%.

UBS said the mix of the capital distribution will likely result in less distribution in 2024 than the consensus expected.

However, the statement also implies likely upside to consensus for 2025 and beyond, UBS added, albeit more in the form of buybacks than regular dividend.

The downside to the near-term is that Direct Line is set to distribute 60% of its operating earnings as a regular dividend, the broker said.

UBS estimates this is equivalent to around 9 pence, 15p and 18p over the next 3 years.

UBS had assumed a 50% regular payout but also included a 'regular' special taking the total payout to 80%.

Shares in Direct Line fell 0.3% to 192.30p in London on Wednesday.

By Jeremy Cutler, Alliance News reporter

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