Editor’s letter: Will it be Aviva or Direct Line Group?

A few years ago, Direct Line brand Churchill ran an advert featuring a bulldog on a skateboard literally ‘chilling’ as it made its way through an urban area soundtracked with O.D. by Britney Stoney.

But the relaxed and soothing tone of this advert has very much been replaced by barking and scratching of heads in recent weeks after the parent company caught a chill following the December cold snap.

A weather event – which saw Direct Line Group flagging that it faced £90m of claims across home and commercial business from the December freeze, citing burst pipes, water tanks and any other related damage.

With the group saying that it expected to deliver a combined operating ratio of 102% to 103% for 2022 and, as a result, not pay a dividend, the backlash was understandable.

Its share price slumped by 25% and just over two weeks later CEO Penny James exited.

Weathering the storm

When Direct Line unveiled its bad news the obvious response from brokers was one of concern that despite DLG owning predominantly business-to-consumer brands, a raft of business-to-business players might follow with revelations of similar hits, raising the prospect that this could lead to a significant market correction, with rates and capacity rising and contracting, respectively.

We will have to see how the 2022 results season plays out, but there must have been comfort for brokers that Aviva has since commented in its own trading update that the weather experience in the UK and Ireland for the full year was only marginally above the long-term average, with the cost of the December freeze put at £50m.

Astute pricing

Given that the insurer’s property book is reported to be larger than DLG’s, Aviva has either got lucky or publicly evidenced more astute pricing and risk management/selection.

The Penny might have already dropped for DLG. But within a month or two we will know how many other board members have been told to get their skates on linked to an unsatisfactory financial performance.

In terms of market stability at a time of enough uncertainty, I – for one – hope that we see more players dial in experiences similar to Aviva than the home of the red phone on wheels.