Direct Line will pay almost £30 million to clients who were overcharged when renewing vehicle and home insurance policies.
The overcharging problem was identified after the wrong implementation of the new pricing practice regulation, which went into effect in January last year, according to the UK’s second largest motor insurer. Existing customers should not be charged more than new consumers, according to the guidelines.
“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,” the company said.
“As a result, those customers have paid a renewal price higher than they should have. Redress will be paid to any affected policyholder. The current estimate of these payments is in the region of £30m.”
Direct Line, which has a market capitalization of more than £2 billion, said it will refund all affected policyholders and that half of the costs associated with the error were previously budgeted for in the company’s 2022 financial results.
According to the Financial Conduct Authority, Direct Line’s action was the first time a company voluntarily agreed to compensate current customers who had paid more than new customers to renew their policies since the laws went into effect last year.
“Direct Line Group has agreed a voluntary requirement having charged some existing home and motor customers more for their renewal than they would have done if they were a new customer,” the FCA said. “Direct Line Group will carry out a review to identify all instances where a customer has been overcharged and provide appropriate redress.”
Direct Line agreed in June to review five years of auto insurance claims after admitting to underpaying certain customers who had their cars and vans written off. Following a market probe, the FCA asked the company to investigate the claims.
Direct Line, which has been accused of raising premiums by 50% to 75%, has been assessing all total-loss claims settled between September 1, 2017 and August 17, 2022.
Under FCA guidelines, offering a price lower than fair market value is prohibited, and the watchdog has stated that it will take action against companies discovered to be doing so.
Sam Richardson, the deputy editor of Which? Money, said: “At a time when car and to a lesser extent home insurance premiums are rocketing, with insurers blaming rising claims costs, it’s shocking that customers are being hit by extra, unnecessary costs, just for being loyal to their insurer. This practice has been banned since the start of 2022.