Case 2.5 Direct Line Insurance Plc
This case was written by Professor Derek F. Channon as a basis for classroom dis-
cussion rather than to illustrate effective or ineffective handling of an administra-
tive situation.
© Copyright Derek F. Channon, 1993.
‘Too-to-to-toot toot toot toot toot tooo’, the little red telephone on wheels
scooted across the car park to stop in front of a lady motorist who had just
been involved in a minor auto accident. She picked up the phone to Direct
Line to find to her delight that, unlike with most insurers, immediate author-
ization could be given for her car to be repaired. The busy little red phone,
which had become the household symbol of Direct Line Insurance and fea-
tured in all the company’s literature and advertising by 1992, was achieving
widespread recognition as a symbol of low cost but personalized service to
customers interested in purchasing motor and household insurance.
From its beginnings in 1985, Direct Line Insurance, in the year to
September 1992, posted its sixth successive gain in gross premiums written
to £213.2 million, an increase of 71.3 per cent on the previous year.
Moreover, in a year where there was severe pressure on the motor insur-
ance industry as traditional competitors made moves to diversify their
delivery systems and regain market share, Direct Line still managed to
achieve underwriting profits. Details of recent financial performance are
shown in Figures 2.5.1 and 2.5.2.
Company history
In April 1985, Nikki de Jaeger, a telesales operator, sold Direct Line’s first
motor insurance policy and so started a revolution which was to transform
the UK motor insurance market in a short time. Peter Wood, Direct Line’s
Chief Executive, believed that it was possible to develop a high quality but
cheaper service to motorists than that offered by traditional insurance
providers operating via brokers.
Mr Wood, a former employee of insurance brokers Alexander Howden
with a background in operations, approached the Royal Bank of Scotland,
one of the leading British clearing banks and the premier institution in
Scotland, to provide financial support and the benefit of the bank’s assured
reputation. With initial funding of £20 million to back the development of
the necessary infrastructure and investment in comprehensive IT systems,
the new company obtained Department of Trade and Industry approval to
enter the insurance industry in January 1985, eight months after the
venture had begun.
Direct Line became a subsidiary of the Royal Bank Group and Mr Wood
The customer market domain: Managing relationships with buyers 111