‘The referral fee system is an inducement to claim and that is wrong’

Most motor insurers would chew off their hind legs for results like Sabre Insurance has recorded over the past two years. While the rest of the market has been reeling from the explosion in bodily injury claims, the niche player’s latest results show a profit of £25m, following 2009’s even more pleasing £37m.

To rub salt in competitors’ wounds, Sabre has achieved this with a combined operating ratio (COR) of below 80%, according to chairman Keith Morris. But Morris isn’t crowing when he comes to meet Insurance Times for his in-depth interview. “We had another good year,” he says modestly.

What makes Sabre’s success story especially puzzling is its clientele. The Dorking-based firm specialises in risks that send other firms into a tailspin. Are you a young driver? Lost your bonus? Own an expensive car? Sabre will cover you.

The company is small, accounting for around 1% of the UK motor insurance market, but Morris says this is an advantage. “Because we are small, we tend to be more niche than other insurers and tend to cover risks they would shy away from,” he says. “There’s little we won’t underwrite.”

He denies that Sabre’s approach is dangerous. “We are fishing in pools of business where there are not many others fishing. I’m not sure I blame others for shying away, but over a long time we have developed techniques.

“Other than the few we are concerned about, there’s a rate for every risk. There’s no high risk or low risk – only the right or wrong rate.

“As long as we get the price for the risk, we don’t care what it is. I’m quite happy with a 17-year-old in a Subaru and I’m quite happy with the 50-year-old bank manager driving a Honda.”

The difference between the two is that the 50-year-old Honda driver is likely to find cheaper insurance elsewhere, he admits.

So what is the secret of Sabre’s success? It comes down, according to Morris, to old-fashioned, disciplined underwriting. “Where a lot of firms go wrong is the disconnect between pricing and reserving,” he says. “Unless you get your reserving right, you will never get your pricing right because it has to reflect your claims experience. If you don’t get it right, you haven’t got a hope.”

The only other company able to hold a candle to Sabre’s COR is Admiral, at 83%. While some are sceptical about Admiral’s performance, Morris is full of praise. “Although its ratio is more than us, it is much bigger. It has done a great job. It has really innovated – one of the first in the aggregator market, and still producing good profits and information.”

Without access to a tool like Admiral’s Confused.com, Sabre relies on statistical interrogation based on the company’s in-depth knowledge of the motor market. “Being small helps, because (co-owner) Angus Ball is an actuary and he can take a good view on reserving and pricing,” Morris says. “Motor runs through the DNA of the company. It’s all we do and it’s all we’ve ever done,” he says. “We are all in one building, there’s good communication and the claims manager can see pretty much every member of his staff.”

Morris can afford to take a relaxed view of the company’s growth. He and his longstanding business partner Ball own Sabre outright. Morris spent nearly a quarter of a century working for

a string of insurers, ending up as claims and underwriting director at the UK arm of French government-owned insurer GAN.

When GAN was privatised and sold to Groupama in 1998, Morris and three partners struck out on their own by buying the UK arm of Jersey-based broker Rossborough Insurance. The new company was renamed BDML Connect. Four years later, BDML – the M stands for Morris and the B for Ball – bought Sabre from Norwich Union, which had decided the motor specialist was no longer core to its activities.

When BDML was sold to Capita, Morris and Ball kept Sabre. It is now owned by parent company Binomial, which the two men jointly own.

Sabre’s commercial success has given Morris a thoroughly credible platform to obtain a string of ex-officio posts. He has recently taken over chairmanship of the ABI’s motor committee, as well as that of the Motor Insurers’ Bureau (MIB). He is also the general insurance representative on the Financial Ombudsman Service’s liaison committee, and is about to take on chairmanship of MIB IT provider IDSL.

Not surprisingly, he admits that he spends less time at his holiday homes in Barbados and Norfolk than Mrs Morris. “I’m passionate about my work. My wife would call me a workaholic, but I don’t feel I am. When I want to relax, I relax.”

What drives him, Morris says, is a passion for the motor insurance market and a desire to make it function better. “This market is fascinating. It’s susceptible to statistical interrogation and it’s got many moving parts.”

Although Sabre has kept its losses under control, Morris shares industry concerns about claims fraud. “Everybody is concerned about it, and rightly so because it is our biggest problem.”

While the government has ducked implementing the Jackson Review’s recommendation to ban referral fees, he insists these are the main problem. “Referral fees encourage claims to be made that would not otherwise be made. Access to justice is legitimate, but the referral fee system is an inducement to claim, and that is wrong.”

He describes the transport select committee’s recent recommendation that insurers should be upfront about referral fees they receive as “way off beam”. While such fees exist, Morris argues insurers and brokers should take them, because they can be used to cross-subsidise other policies and commissions. “It’s a Catch-22 situation for us: while referral fees exist you can’t not take them.”

Another area he wants action in is the judiciary’s treatment of whiplash claims. “A high proportion are not legitimate,” he says, “The biggest problem is there is no objective test for it.”

Such a test would benefit both lawyers and insurers, he says. “No reputable lawyer wants to take on a fraudulent claim, but they can’t tell whether they are fraudulent or not.”

“It’s pretty much down to the credibility of the claimant and the witnesses. If they appear credible, the judge will accept their story.”

Judges do not sufficiently take into account factors such as the speed the car was travelling at and the headrest setting, he says. “In certain parts of the country the judiciary is pro-claimant. If you stopped whiplash, some courts would lose half their business,” he adds.

While claims remains a headache, Morris says progress is being made on issues such as data sharing between the MIB and the DVLA, and continuous insurance enforcement, which is due to come into force in the next few weeks. He describes the latter as particularly welcome in the context of expected cuts in police enforcement.

“As enforcement is dropping, we might be getting enforcement by letters through the mail, so it’s opportune that it’s coming in now.”

He says achieving changes like these are a “long hard slog”, but it is clear that he would not swap his current life. “I don’t do anything unless I enjoy it, and I love this market.”