James Daley

By James Daley

A few weeks ago, I wrote about the danger of transferring your trust in a big name brand to their financial services division. Over the past few years, it's become a common trend for major retalilers to launch credit cards, insurances and even bank accounts - stretching the trust in their brand to a range of more complicated and very different products to the ones they're known for.

A pioneer, rather than a follower, of this trend was the Automobile Association (the AA to you and me), which having built an excellent reputation for roadside recovery, realised that it would be a natural next step to begin offering car insurance. It launched into this market almost 50 years ago, and over the following decades, it made natural next steps into travel insurance, home insurance, and eventually everything through to credit cards and even savings accounts.

While each step may have made sense for the AA at the time, the values of today's AA financial services division feel very detatched from its core breakdown product - which still has excellent customer satisfaction ratings, and provides a lifeline to thousands of stranded motorists every day. Across its insurance products, the AA's performance is a mixed bag - but tellingly, it's original car insurance product now has some of the lowest customer happiness scores in the industry.

And in all three insurance sectors where Fairer Finance rates the AA - home, car and travel insurance - it's happiness and trust scores are below average.

Where did it go wrong?

My suspicion is that things started to change at the AA when it gave up its mutual ownership back in the late 1990s - and was sold off to Centrica. Just a few years later, it ended up in the hands of private equity owners, who over the past decade have grown the financial services business rapidly, but without taking care to offer the same level of high service in this part of its business.

Acromas, which currently owns the AA, is a holding company that is in turn owned by two private equity businesses - Permira and CVC. Acromas was created in 2007 when the AA was merged with Saga, which was last month finally floated off - and did not get away to the kind of stock market reception that its owners may have hoped.

Saga shares a number of similarities with the AA. It built its brand and trust by being known for one core product - package holidays for people in retirement. A natural next step was to offer travel insurance, and 60 years after its launch, it now offers just about every financial services product under the sun. But its service levels and transparency in this area of its business no longer keeps pace with its core product.

Should you buy shares in Saga or the AA?

Based on their track record over the past decade, I wouldn't invest in either Saga or the AA, when it floats over the next year. But these are big brands, which could easily bounce back in financial services, in spite of a decade of under-investment.

The former CEO of Domino's Pizza is Saga's new CEO. I'm not sure selling pizzas is much like selling insurance. But we'll be keeping on eye on both Saga and the AA as they go through these big changes, to see whether they can reverse a flailing performance in their financial services division.