Higher car insurance premiums help drive sales growth for AA

The AA has said rising car insurance premiums helped drive up its yearly sales, but reported a more than 40% drop in profits.

The motoring group said customers continued to spend on breakdown cover despite reining in other household spending amid cost-of-living pressures.

It reported total revenues of £1.3 billion for the year to the end of January, 11% higher than the previous year.

Revenues from the group’s insurance arm jumped a fifth year on year, partly due to increased customer premiums, it said.

Premiums, which are paid by anyone who takes out an insurance policy, can go up if the cost of settling claims, such as car repairs, rises for insurers.

The AA said it had adjusted its prices throughout the year in light of inflationary cost pressures.

Across its key roadside division, which includes breakdown assistance and car repairs, revenues jumped 7% year on year.

The group, which specialises in breakdown cover and also runs a driving school, revealed its pre-tax profit dropped by 41% to £42 million in the latest year.

This was a result of higher finance costs, primarily greater interest rates on new debts, it said.

Meanwhile, the AA said its driving schools were impacted by repeated strike action by the Driver and Vehicle Standards Agency (DVSA) in 2023, with many learner drivers facing delays planning their tests.

Despite this, it had more than 3,100 instructors and said the division continued to grow.

AA chairman Rick Haythornthwaite said: “Our recurring membership model continues to be resilient during periods of economic pressure, with customers protecting breakdown spend despite taking other measures to rein in spending following the cost-of-living crisis.”

Chief executive Jakob Pfaudler said it was a “milestone year” for the AA, adding: “The achievement of a third year of membership, revenue, and EBITDA (earnings before interest, tax, depreciation and amortisation) growth reflects the transformation of our business since FY21 and showcases our momentum, despite continued external pressures.”