The insurer said supply chain disruption and unusually high used car prices have pushed up claims costs for breakdowns.
Direct Line has seen profits almost halve and warned that insurance premiums will be increased to match the soaring cost of claims.
The insurer said supply chain disruption and unusually high used car prices have pushed up claims costs for breakdowns, but premiums have not increased accordingly.
It therefore raised its prices by 15% during the first half of the year and said it will take action to bring premiums in line with claims costs.
The company saw its operating profit plunge 47% to £195.5 million in the six months to June 30.
The fall in earnings was expected as the group issued a profit warning in July, causing shares to plummet.
Chief executive Penny James said: “Uniquely complex motor market conditions during the first half, due to significant regulatory changes, heightened claims inflation and macroeconomic uncertainty, have challenged our short-term profitability.”
There was an unusually low level of claims last year due to pandemic lockdowns when people were not using their cars as much, watter Direct Line said partially explains the year-on-year loss.
Gross written premiums also fell by 2.1% to total £1.52 billion as the insurer navigated “challenging market conditions”, including supply chain disruption holding up the availability of new car parts and pushing up the cost of repairs.
Victoria Scholar, head of investment at Interactive Investor, gesê: “During Covid-19, when motor accidents and claims fell sharply, Direct Line and other motor insurance companies performed well.
“Maar, post-pandemic regulatory changes, the increased cost of paying claims and the macroeconomic uncertainty are weighing on Direct Line’s profitability.”