Direct Line to pay out £30million in compensation after overcharging customers

01 September 2023 , 09:05

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Direct Line expects to pay out £30million in compensation (Image: Getty Images/iStockphoto)

Direct Line is to pay out around £30million in compensation to car and home insurance customers.

Some existing customers were charged more for their renewal than what they would have done if they were a new customer with Direct Line. But new rules brought in by the Financial Conduct Authority (FCA) in early 2022 banned this type of "loyalty penalty" - and means existing customers should not pay more than new policyholders.

Direct Line admitted there was an “error” in implementing the new pricing rules set by the FCA. As a result, the insurance firm said it will be reviewing its past policies and contacting affected policyholders.

But it has not said how many customers were impacted, or what the average payout will be - but it expects the total compensation to come to £30million. Not all customers who renewed a policy were affected.

A spokesperson told The Mirror “there is no need for any customers to contact us at this stage” and claimed “the majority of customers who have seen an increase in their premiums will have been unaffected by this issue”.

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The spokesperson said: “We have always sought to operate within the FCA’s pricing rules. What has become clear from our engagement with the regulator is that there are a group of customers who may have been incorrectly charged.

“Work is already ongoing to confirm these customers, so we can apologise and refund any money owing to them as quickly as possible. Insurance prices have been going up over the last two years due to a number of factors affecting the entire insurance market – including high claims inflation, the overall economy, claims frequency and severity, and unforeseen weather events.”

It comes after new research revealed drivers are paying more than £500 a year for car insurance as costs rocket to the highest levels since records started in 2012. The average premium paid for private comprehensive motor insurance in the second quarter of 2023 was £511, according to the Association of British Insurers (ABI).

The average price is up by just over a fifth (21%) or nearly £90, over the past year. Back in the second quarter of 2022, the average price paid for car insurance was £88 less, at £423. The ABI said insurers blame inflation and a massive rise in vehicle repair costs for higher premiums.

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