AA warning on price rises over higher taxes on insurance policies

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

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% in 2015 to 12% from June.

But it cautioned 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.

It hopes efforts to boost the quality and range of services offered to members will help offset any possible price rise.

The AA has already been investing in new technology, such as a breakdown app for members, which is now being used in more than a fifth - 22% - of breakdowns.

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

This came after it signed up new customers, with a 19% 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%.

The AA said it saw a 5% rise in the number of breakdown call-outs over the year to January 31, 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.