AA warns on price rises after motor insurance tax hike

The AA warned it may have to raise prices after the UK government doubled the tax rate on insurance policies in less than two years.

Insurance premium tax has doubled in less than two years. Picture: John Devlin

The breakdown service said it has so far been able to shoulder the extra costs after the government has raised insurance premium tax (IPT) three times, from 6 per cent in 2015 to 12 per cent from June, but cautioned that it may need to review its pricing.

“We have managed to protect our members by absorbing some of this price rise, but this is an industry-wide challenge and we will need to review our pricing policy in the context of any future increase in IPT,” the AA said.

The AA hopes efforts to boost the quality and range of services offered to members will help offset any possible price rise. It has been investing in new technology, such as a breakdown app for members, which is now being used in more than a fifth of breakdowns.

The group cheered an “important milestone” as it halted the long-standing decline in membership numbers, with a 0.4 per cent rise in paid personal members to 3.3 million in the six months to 31 January.

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This came after it signed up more customers, with a 19 per cent rise in new business year-on-year in the second half, and also held on to more existing members, with its retention rate improving to 82 per cent.

The AA said it saw a 5 per cent rise in the number of breakdown call-outs over the year, which has reversed a trend of gradual decline.

It said while this was “unhelpful for costs in the short term, it nonetheless underscores the continued demand for our services and enhances a customer’s likelihood of renewing their membership”.

The AA added its recently launched in-house underwriter notched up a better-than-expected 115,000 motor insurance policies in its first year.

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