Insurer Direct Line Group has announced lower-than-expected half-year profits, and said it shed 488,000 motor customers after increasing the cost of cover by as much as 31 per cent.

The firm, which employs 3,000 people in Yorkshire across its Direct Line, Churchill and Green Flag brands, returned to a pre-tax profit, with a surplus of £61.6m for the six months to June 30 , against losses of £76.3m a year ago.

But this was below the £85m forecast by most analysts, sending shares two per cent lower in Wednesday trading.

Direct Line, which has been hiking the price of its insurance as it looks to turn around its performance and offset industry-wide cost pressures, said that in-force policies were 3.1 per cent lower than at the end of December last year.

The Direct Line Office from Granary Wharfe at Dusk. Picture Bruce Rollinson

Its motor insurance division has been the hardest hit, with own-brand policies 7.5 per cent lower across the first half as car cover customers saw steep rises in premiums.

Direct Line said that average premiums for new customers rose 16 per cent year on year in the first half to £592, while existing customers saw renewal prices surge 31 per cent to £514.

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Overall, own-brand average motor premiums were 27 per cent higher at £538.

This saw the number of direct own-brand motor policies slump by 488,000 year on year to 3.1 million in the first half.

But the raising of premiums helped the division claw its way out of the red, with first-half operating profits of £3.1m against losses of £180.4m a year ago.

It said the wider market began reducing car insurance premiums during the second quarter, down two per cent across the industry, but that Direct Line held its nerve on pricing.

Direct Line said: "Against this backdrop, we continued to focus on disciplined underwriting and this led to a 7.5 per cent reduction in own brand policy count during the first half.

"In the second quarter, as motor began to go through the anniversary of the previous year's significant rate increases, retention improved and the rate of policy count loss slowed."

Direct Line, which recently fended off a £3.1bn takeover attempt by Belgian rival Ageas, said it remained on track to cut annual costs by at least £100m by the end of 2025.

Recently-hired chief executive Adam Winslow , who took on the job earlier this year, said: "The actions we have taken are beginning to make a difference but there is more to do.

"We will continue to drive business transformation during the second half of 2024 and into 2025, as our new high calibre management team continues to arrive."

In July, Direct Line announced its intention to put its flagship brand on price comparison websites for the first time.

The products for these websites will contain different cover levels and features to the Direct Line motor insurance offering available to customers who purchase their cover directly from the insurer.

The move aims to increase the visibility of Direct Line’s products and attract new customers.

Direct Line: Return to profit falls short and motor customers quit after insurer hikes cost of cover