Direct Line will pay about £30m to customers who were charged more than they should have been to renew car and home insurance policies.
The UK’s second biggest car insurer, which in June launched a review into motor insurance claims over the last five years after an investigation into the market by the Financial Conduct Authority (FCA), said that it discovered the overcharging problem after the incorrect implementation of the new pricing practice regulation that came into force in January last year.
Under the rules, existing customers should not be charged more than if they were a new customer.
“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.
Direct Line, which has a market value of more than £2bn, said it would reimburse all affected policyholders and that half of the costs related to the error had already been provided for in its 2022 financial results.
The FCA said the move by Direct Line marks the first time a firm has voluntarily agreed to redress existing customers who have paid more than new customers to renew their policies since the rules came into force 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.”
In a separate move, Direct Line agreed in June to go back through five years of claims after admitting that it underpaid some customers who had their cars and vans written off.
The company, which has been accused by customers of upping premiums by 50% to 75%, is reviewing all total loss claims settled between 1 September 2017 and 17 August 2022.
Offering a price lower than fair market value is not allowed under FCA rules and the watchdog said it would take action against companies it found doing this.