Motor and home insurer Direct Line (DLG) is preparing to meet the various industry challenges it faces by proposing to cut 2,000 jobs in the UK. The company improved 5.7% to 231.6p after stepping up its cost-cutting plans.


Management announced last August plans to shave off £100 million of its annual costs by 2014 as part of its ‘transformational plan’. They have now doubled this target in a bid to regain its competitive edge in a congested market.


The proposed cuts would knock 14% off its 14,400 workforce and follows the closure of its Teesside call centre.


The number of high-profile providers in the market has put pressure on insurance premiums. Indeed, last year Direct Line’s pre-tax profits dropped by some £100 million to £249.1 million, while its combined ratio – the relation of its premiums to its claims –was 98%. Its financials do appear to be moving in the right direction with the company reporting a £108 million pre-tax profit in the first quarter, a third higher than at the same point last year.


Direct Line needs to ensure it has a strong balance sheet as pressure on premiums is set to increase. In September 2012, the Competition Commission announced investigation into the industry over concerns that premiums are too high.


DIRECT LINE INGROUP - Comparison Line Chart (Rebased to first)


The company was floated last year by its parent Royal Bank of Scotland (RBS) under the terms of its £45 billion tax-payer bailout. The bank must completely exit the company by the end of next year creating a major stock overhang.


Direct Line, which names Churchill and Green Flag among its brands, has 16 sites in the UK, including London, Leeds, Glasgow and Manchester.

Issue Date: 26 Jun 2013