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COVID 19 related travel insurance claims rise to £5 million for Direct Line

According to UK insurer, Direct Line, the cost of Coronavirus-related travel insurance claims rose from £1 million to £5 million in less than two weeks between March 3 and March 15 2020, as the UK government advised against non-essential international travel.

Background

Direct Line stopped selling travel insurance to new customers on March 13, along with AXA, Aviva and LV, as we reported in our blog here.

A number of countries have introduced bans on the entry of British nationals, and the UK government is warning people of travel restrictions that could be put in place at ‘short notice’. “An increase in claims following further travel restrictions … is expected, although it is too early to estimate the potential impact,” Direct Line said. “The group has implemented measures to help mitigate this, including pausing new travel insurance sales.

Business Impact

In an effort to preserve the Group’s balance sheet, Direct Line has halted its £150 million share buyback plan, which was intended to fortify the Company’s solvency capital ratio. So far, £29 million of shares have been purchased under the scheme. CFO, Tim Harris, said: “Given the uncertainty as a result of Covid-19 we’ve taken the prudent decision to pause our share buybacks until the situation becomes clearer.” Harris went on to add that, “the Direct Line Group capital position remains strong,” and solvency has moved “as expected in line with our sensitivity analysis following recent market movements.” Direct Line has said it will be “keeping the position under review” to assess opportunities to undertake further share repurchase exercises in the future.

Insurers are required to keep solvency ratios above 100%, to indicate that they are able to meet all their liabilities. Direct Line has advised that its solvency ratio remained at 163% after allowing for the “effect of the recent deterioration in the financial markets on the group’s investment portfolio.

The travel restrictions may actually prove helpful to other areas of Direct Line’s portfolio. For example, following the British government’s more recent advice against non-essential travel and working from home, the insurer expects fewer motor insurance claims in the short term, which could go some way to offsetting the losses being incurred on its travel book.

Comment

As this crisis develops, insurers are expected to continue to serve as shock absorbers for the economy and society. Direct Line has reported that it had reinsurance cover totalling £18.5 million for travel insurance claims and this will be a large part of how the Company is helped and indeed how the industry continues to spread its risk. But it is also likely that insurers will need to adjust their budgets and implementation plans, cash flow expectations, and investment portfolios in light of recent events.

 

© Copyright 2020 Squire Patton Boggs (US) LLP

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About this Author

Garon Anthony, Squire Patton Boggs, litigation attorney
Partner

Garon Anthony is a partner in the Litigation Practice Group. He has specialised in dispute resolution work since he qualified as a solicitor and has considerable experience in general corporate and commercial litigation work, acting for both private and public sector clients.

Garon regularly resolves disputes for clients in the financial services/insurance sector. That encompasses professional negligence, fraud issues/recovery processes, dealing with claims and complaints by customers of the mis-selling of retail products, handling insurance policy coverage disputes for corporate...

44 121 222 3507
Mariyam Harunah Debt Recovery Attorney Squire Patton Boggs
Associate

Mariyam regularly acts for a diverse client base, including, SMEs, FTSE 100 and 250 corporations, public bodies, developers, insurers and individuals.

Mariyam has experience advising on a wide-range of matters of both a contractual and tortious nature, including breach of contract, breach of warranty, misrepresentation, defamation, professional negligence, debt recovery and insurance.

Experience

  • Assisting on an approximately £160 million multi-action and multi-defendant claim following the sale of a company to investor clients.

  • Acting on a variety of disputes for clients seeking the recovery of unpaid monies owed pursuant to contract.

  • Acting on a portfolio of financial mis-selling claims for a leading international bank.

  • Advising a variety of clients upon termination of contract issues.

  • Acting for industrial manufacturers and suppliers in the defence of contractual and tortious disputes with technical complexities, arising out of the provision of allegedly defective products.

  • Assisting in the provision of bespoke and strategic advice to a national regulator dealing with persistent defamation and harassment.

  • Acting for a leading hire purchase provider in enforcement proceedings.

  • Assisting on a £500,000 negligence claim by a leading supermarket arising out of property damage and business interruption at one of its warehouses.

44 121 222 3175