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Direct Line founder sparks price war

The un-named project will provide cover to young drivers, owners of classic and sports cars, drivers with minor convictions and those with less than four years' no claims bonus who are not covered by direct insurers. These drivers make up 40 per cent of the vehicle parc.

It could mean that in a bid to offer motorists low cost insurance, the venture will seek to recover some of its costs from the accident repair industry. Backed by HBOS and chaired by Wood, the new company will sit alongside Esure, which targets safe or low-risk drivers and does not cover commercial vehicles.

Still known by its codename, Spectrum, it will share Esure's resources but will have a separate management team lead by chief executive Colin Batabyal and target drivers over the internet.

With the creation of Direct Line in 1985, Wood revolutionised the industry by offering drivers insurance over the phone and bypassing the broker. Its focus on low-cost insurance meant bodyshop margins were squeezed to recover cash.

The news comes just weeks after Wood's former colleague and now business rival Martin Long sold Churchill Insurance to Royal Bank of Scotland for £1.1bn, making it the UK's third largest general insurer with 15 per cent of the market.

Wood's new venture will go head to head with the Privilege brand, which he set up while he was at RBOS. Privilege insures high net worth drivers in London and the south east of England.

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