Insurers reveal profits yet premiums drop steeply


So here’s one thing I just don’t understand: car and van insurance companies are reporting tidy profits even as premium prices plummet, sometimes severely.

Maybe I’m just naive but I always used to thinking about reality in a certain way. For example, if a car insurance company reports profits are going up, I’d expect to think that their premium pricing has crept higher as well, yet somehow that’s actually not the case right now. I know it seems backwards – and let’s be honest, it is – yet the news this week was filled with interesting tidbits of information revealing just these jumbled facts.

First of all, Direct Line Insurance just announced that its six month profit hit a tidy sum. How tidy you may ask? Well how does £225.1 million sound to you? I know it sounds fantastic to me. Now for what it’s worth Direct Line doesn’t just do motor and commercial van insurance but home insurance and other types of business – there’s all sorts of revenue streams the company has, and somehow all of them have been in the black.

Yet at the same time – and this is where it makes my head hurt to think about it – Direct Line also just reported that its first half premium profits have declined by nine per cent. What has happened here is that the price of an insurance policy in the UK has plummeted over the last year. In fact in some regions such as Scotland – where Direct Line actually hails from, considering that it had been spun off from Royal Bank of Scotland two years ago – prices have dropped by something like an amazing 20 per cent.

So premium prices are going down, insurers are taking in less money, yet somehow their profits are soaring? What in blue blazes is going on? Well the writing is on the wall – I’ll bet you anything that there are hundreds of insurance staff members getting sacked left and right as part of ‘corporate cost restructuring efforts’ or some other such rubbish. Fewer Brits on payroll means less money flowing out of the coffers of insurers to begin with – so they can afford to collect smaller amounts of revenue from British drivers. What a bloody mess!

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