AA warns of car insurance hikes ahead

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

The breakdown service said it had so far been able to shoulder the extra costs from insurance premium tax, which was raised from 6pc in 2015 to 12pc from June.

‘We have managed to protect our members by absorbing some of this price rise, but this is an industrywide challenge and we will need to review our pricing policy in the context of any future increase,’ it said.

It hopes that efforts to boost the range of services offered to members will offset any price rise.

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

The group cheered an ‘important milestone’ as it halted a long-standing decline in numbers, with membership rising to 3.3m in the six months to January 31.

This came after a 19pc rise in new business year-on-year in the second half. It also held on to more existing members, with its retention rate improving to 82pc.

The AA saw a 5pc rise in the number of breakdown calls over the year to January 31, reversing a trend of gradual decline.

Its new in-house underwriter notched up 115,000 motor insurance policies in its first year.