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Direct Line motor insurance premiums up 6.6% amid personal injury changes

Insurer Direct Line has hiked the cost of car cover by nearly 7% to offset the hit from Government changes to the way personal injury claims are calculated.

The group said motor insurance premiums jumped 6.6% higher on average in the first three months of the year and warned that prices rose "significantly more than that" for higher risk policyholders such as young drivers.

Direct Line said there had been little trading impact from the shock decision in March to cut the so-called Ogden discount rate calculation , which is expected to increase payments to victims of life-changing injuries through medical negligence, car crashes and other incidents.

But it said it increased prices ahead of the "anticipated impact on claims inflation".

Direct Line revealed a 30% slump in annual profits in March after taking a hit of more than £217 million from the Ogden rate change.

It is the latest car insurer to warn over price rises, with Admiral saying in March it would increase the cost of cover as it looks to recoup a £150 million impact from the Ogden rate cut.

Despite the price rises and more customers shopping around for cover, Direct Line said it saw a 4.8% rise in car insurance policies to 3.9 million in the first quarter, with own-brand policies up by 5.9%.

This helped offset a tougher quarter for its home insurance arm, which saw a 2% rise in own-brand policies offset by a 5% fall for cover offered through partners such as Nationwide and Sainsbury's.

The group has also been increasing the cost of cover for home insurance with "low single-digit" price hikes, which has impacted sales.

It said these price increases have failed to offset the rising cost of home insurance claims, with the division knocked by claims for leak damage in particular over the first quarter.

Gross written home insurance premiums fell by 3.9% year-on-year in the first quarter, with average premiums down by 1.1% in spite of the price rises.

Paul Geddes, chief executive of Direct Line, said: "We have delivered particularly strong results in motor and this performance has more than offset the challenging home market."

Direct Line said that as well as the Ogden rate changes, it had increased the price of car cover after seeing claims costs rise.

This was largely driven by rising damage repair costs, it added.

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